IDEAS home Printed from https://ideas.repec.org/a/aea/jecper/v38y2024i2p159-80.html
   My bibliography  Save this article

How Cyclical Is the User Cost of Labor?

Author

Listed:
  • Marianna Kudlyak

Abstract

In employment relationships, a wage is an installment payment on an implicit long-term agreement between a worker and a firm. The price of labor that impacts firm's hiring decisions, instead, reflects the hiring wage as well as the impact of economic conditions at the time of hiring on future wages. Measured by the labor's user cost, the price of labor is substantially more pro-cyclical than the new-hire wage or the average wage. The strong procyclicality of the price of labor calls for other forces for cyclical labor demand to explain employment fluctuations.

Suggested Citation

  • Marianna Kudlyak, 2024. "How Cyclical Is the User Cost of Labor?," Journal of Economic Perspectives, American Economic Association, vol. 38(2), pages 159-180, Spring.
    • Handle: RePEc:aea:jecper:v:38:y:2024:i:2:p:159-80
    DOI: 10.1257/jep.38.2.159
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/jep.38.2.159
    Download Restriction: no
    File URL: https://doi.org/10.3886/E198833V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/doi/10.1257/jep.38.2.159.ds
    Download Restriction: no
    File URL: https://libkey.io/10.1257/jep.38.2.159?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Mark Bils & Marianna Kudlyak & Paulo Lins, 2023. "The Quality-Adjusted Cyclical Price of Labor," Journal of Labor Economics, University of Chicago Press, vol. 41(S1), pages 13-59.
    2. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    3. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 1-25.
    4. Finn Kydland & Edward C. Prescott, 1980. "A Competitive Theory of Fluctuations and the Feasibility and Desirability of Stabilization Policy," NBER Chapters, in: Rational Expectations and Economic Policy, pages 169-198, National Bureau of Economic Research, Inc.
    5. Robert E. Hall, 1980. "Employment Fluctuations and Wage Rigidity," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 11(1, Tenth ), pages 91-142.
    6. José I. Silva & Manuel Toledo, 2013. "The Unemployment Volatility Puzzle: The Role Of Matching Costs Revisited," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 836-843, January.
    7. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 93(4), pages 666-689, August.
    8. José Mustre‐Del‐Río, 2019. "Job Duration over the Business Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(6), pages 1691-1711, September.
    9. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    10. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-688, August.
    11. Rudanko, Leena, 2009. "Labor market dynamics under long-term wage contracting," Journal of Monetary Economics, Elsevier, vol. 56(2), pages 170-183, March.
    12. Barro, Robert J., 1977. "Long-term contracting, sticky prices, and monetary policy," Journal of Monetary Economics, Elsevier, vol. 3(3), pages 305-316, July.
    13. Rotemberg, Julio J. & Woodford, Michael, 1999. "The cyclical behavior of prices and costs," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 16, pages 1051-1135, Elsevier.
    14. Robert Shimer, 2004. "The Consequences of Rigid Wages in Search Models," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 469-479, 04/05.
    15. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    16. Gadi Barlevy, 2002. "The Sullying Effect of Recessions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 65-96.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kudlyak, Marianna, 2014. "The cyclicality of the user cost of labor," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 53-67.
    2. Martins, Pedro S. & Solon, Gary & Thomas, Jonathan P., 2010. "Measuring What Employers Really Do about Entry Wages over the Business Cycle," IZA Discussion Papers 4757, Institute of Labor Economics (IZA).
    3. Pedro S. Martins & Gary Solon & Jonathan P. Thomas, 2012. "Measuring What Employers Do about Entry Wages over the Business Cycle: A New Approach," American Economic Journal: Macroeconomics, American Economic Association, vol. 4(4), pages 36-55, October.
    4. Haefke, Christian & Sonntag, Marcus & van Rens, Thijs, 2013. "Wage rigidity and job creation," Journal of Monetary Economics, Elsevier, vol. 60(8), pages 887-899.
    5. Jonathon Hazell & Bledi Taska, 2020. "Downward Rigidity in the Wage for New Hires," Discussion Papers 2028, Centre for Macroeconomics (CFM).
    6. Yongsung Chang & Sun-Bin Kim & Mark Bils, 2007. "Comparative Advantage in Cyclical Unemployment," 2007 Meeting Papers 508, Society for Economic Dynamics.
    7. Mark Gertler & Antonella Trigari, 2009. "Unemployment Fluctuations with Staggered Nash Wage Bargaining," Journal of Political Economy, University of Chicago Press, vol. 117(1), pages 38-86, February.
    8. Leena Rudanko, 2008. "Aggregate and Idiosyncratic Risk in a Frictional Labor Market," Boston University - Department of Economics - Working Papers Series wp2008-009, Boston University - Department of Economics.
    9. Daniel Schäfer & Carl Singleton, 2020. "Nominal Wage Adjustments and the Composition of Pay: New Evidence from Payroll Data," Economics working papers 2020-11, Department of Economics, Johannes Kepler University Linz, Austria.
    10. Lydon, Reamonn & Lozej, Matija, 2018. "Flexibility of new hires’ earnings in Ireland," Labour Economics, Elsevier, vol. 53(C), pages 112-127.
    11. Merkl, Christian & Stüber, Heiko, 2024. "Wage and employment cyclicalities at the establishment level," European Economic Review, Elsevier, vol. 161(C).
    12. Rogerson, Richard & Shimer, Robert, 2011. "Search in Macroeconomic Models of the Labor Market," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 7, pages Pages: 61, Elsevier.
    13. Pascal Michaillat, 2012. "Do Matching Frictions Explain Unemployment? Not in Bad Times," American Economic Review, American Economic Association, vol. 102(4), pages 1721-1750, June.
    14. Christopher A. Pissarides, 2009. "The Unemployment Volatility Puzzle: Is Wage Stickiness the Answer?," Econometrica, Econometric Society, vol. 77(5), pages 1339-1369, September.
    15. Yusuf Mercan & Benjamin Schoefer & Petr Sedláček, 2024. "A Congestion Theory of Unemployment Fluctuations," American Economic Journal: Macroeconomics, American Economic Association, vol. 16(1), pages 238-285, January.
    16. Susanto Basu & Christopher L. House, 2016. "Allocative and Remitted Wages: New Facts and Challenges for Keynesian Models," NBER Working Papers 22279, National Bureau of Economic Research, Inc.
    17. Basu, S. & House, C.L., 2016. "Allocative and Remitted Wages," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 297-354, Elsevier.
    18. Michael W. L. Elsby & Ryan Michaels & David Ratner, 2015. "The Beveridge Curve: A Survey," Journal of Economic Literature, American Economic Association, vol. 53(3), pages 571-630, September.
    19. Anabela Carneiro & Paulo Guimaraes & Pedro Portugal, 2009. "Real Wages and the Business Cycle: Accounting for Worker and Firm Heterogeneity," CEF.UP Working Papers 0903, Universidade do Porto, Faculdade de Economia do Porto.
    20. Kfir Eliaz & Ran Spiegler, 2014. "Reference Dependence and Labor Market Fluctuations," NBER Macroeconomics Annual, University of Chicago Press, vol. 28(1), pages 159-200.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M51 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Firm Employment Decisions; Promotions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:38:y:2024:i:2:p:159-80. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.