Real wage growth over the business cycle:contractual versus spot markets

Andriana Bellou () and Baris Kaymak

MPRA Paper from University Library of Munich, Germany

Abstract: We study the wage growth of job stayers over the business cycle, and show that wage adjustments within a job spell display significant history dependence. This is at odds with the spot market model, which implies that the wage growth of a worker within a job spell depends solely on the change in the contemporaneous economic conditions. Instead, we find that workers hired during recessions, or those who experienced unfavorable economic conditions since they were hired, receive larger wage raises during expansions, and are subject to smaller wage cuts during downswings. The change in the contemporaneous conditions, on the other hand, is not a significant determinant of wage growth. Our findings are consistent with a model of implicit insurance contracts where neither the employer nor the worker can fully commit to the contract.

Keywords: Business Cycles; Wage Rigidity; Implicit Contracts; Cyclical Selection (search for similar items in EconPapers)
JEL-codes: E32 J31 J41 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-bec, nep-dge, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:30401

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