Employment composition and the cyclical behaviour of the aggregate real wage

Magda Kandil and Jeffrey Woods

Applied Economics, 2002, vol. 34, issue 6, 689-708

Abstract: This article investigates the relation between the cyclical behaviour of employment composition and the weighted average (aggregate) real wage in the USA. Cyclicality of employment composition arises in the context of two competing explanations of business-cycle theory: the human capital investment and profitability models. Consistent with the implications of the profitability theory, the relative share of labour hours for older (age ≥ 25) more highly-skilled and paid workers declines faster during recessions compared to younger ((age 16-19) and (20-24)) less skilled and lower-paid workers. This result, coupled with the downward flexibility of teenage real wages reinforces the procyclical (reduction) in the aggregate real wage during recessions. Interestingly, the decline in the relative share of workers age ≥ 25 during recessions is not accompanied by a corresponding significant decline in their nominal or real wages. Thus, most of the adjustment during cyclical downturns appears to result in a reduction in their relative share of labour hours as opposed to wages. In addition, the empirical results suggest that the relative share of employment for workers age ≥ 25 grows more slowly during expansions compared to its decline during contractions, lending further support to the profitability theory. The combined evidence highlights the importance of both employment composition and disaggregate real wages and their influence in determining the cyclical behaviour of the aggregate real wage.

Date: 2002
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.tandfonline.com/doi/abs/10.1080/00036840110053243 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:applec:v:34:y:2002:i:6:p:689-708

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEC20

DOI: 10.1080/00036840110053243

Access Statistics for this article

Applied Economics is currently edited by Anita Phillips

More articles in Applied Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().