Wage response to changes in the cyclical situation: an estimate based on MCVL social security administrative labour records

Numerous studies have been published on how wages respond to changes in the economic situation. This research, summarised, for example, in Pissarides (2009), tends to find procyclical behaviour of wages in the United States and various European countries, i.e. wages tend to grow in economic upturns and fall in downswings. These same studies find that wages are more closely related to labour market conditions in the case of new job entrants. In Spain, the available evidence on this question is scant. Recently, De la Roca (2014) found weakly procyclical behaviour of wages in Spain based on information in the Muestra Continua de Vidas Laborales (social security administrative labour records – hereafter “MCVL” by the Spanish abbreviation). This article summarises the main findings of a recent study1 which estimates the degree of procyclicality of wages in Spain between 1987 and 2013 using the same database and analysing possible differences in the degree of wage response in the various phases of the business cycle. In principle, nominal or real downward wage rigidities induce a lower wage response in recessions,2 but the empirical evidence of differences throughout the business cycle is scant and inconclusive.3 The rest of the article is organised as follows. Section 2 briefly describes the data and the methodology used, Section 3 sets out the main results, discussing the possible differences between different types of workers according to years of service and type of contract, and Section 4 analyses the differences in wage response in the last two recessions.