On the Cyclicality and Stability of Real Earnings

Robert Hart and Jim Malley

No 45, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We show in this paper that important insights into the cyclical behavior of wages can be gained by dividing (real) average hourly earnings into their straight-time hourly wage and overtime components. Our motivation is based on the idea of employment-contingent contracts. BLS published and unpublished statistics are used to decompose average earnings into (i) the straight-time wage rate, (ii) the ‘mark-up’ needed to achieve an overtime workers earnings rate, and (iii) the proportion of workers working overtime. Using monthly manufacturing data from 1962-1997, cyclicality measures of these components are based on contemporaneous bivariate correlations using four alternative detrending methods while stability is examined using recursive estimation and testing methods. While the wage rate is generally acyclical and unstable, the other two components are highly pro-cyclical and relatively stable.

Keywords: Cyclical behavior of wages; straight-time wages; overtime; overtime premium (search for similar items in EconPapers)
JEL-codes: J3 J41 (search for similar items in EconPapers)
Pages: 28 pages
Date: 1999-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Working Paper: On the Cyclicality and Stability of Real Earnings (1999)
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