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Real Wages over the Business Cycle: Evidence from a Structural Time Series Model

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  • Mocan, H Naci
  • Topyan, Kudret

Abstract

This paper uses a Structural Time Series Model to investigate the behavior of real wages over the business cycle. Estimating a flexible trend using the Kalman Filter enables us to avoid the current controversy surrounding the unit testing issue. Using the unexpected changes in the price level and output we determine the periods dominated by demand and supply disturbances. Real wages in the United States, Canada, France, the United Kingdom move procyclically in the existence of supply shocks, but are countercyclical in the presence of demand disturbances. The results support the predictions of macro models involving nominal wage stickiness and the Real Business Cycle (RBC) premise that real wages are procyclical in the existence of supply disturbances. They also underscore the significance of recent RBC research which puts emphasis on demand disturbances. Copyright 1993 by Blackwell Publishing Ltd

Suggested Citation

  • Mocan, H Naci & Topyan, Kudret, 1993. "Real Wages over the Business Cycle: Evidence from a Structural Time Series Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(4), pages 363-389, November.
    • Handle: RePEc:bla:obuest:v:55:y:1993:i:4:p:363-89
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    Cited by:

    1. Rees, Daniel I. & Mocan, H. Naci, 1997. "Labor market conditions and the high school dropout rate: Evidence from New York State," Economics of Education Review, Elsevier, vol. 16(2), pages 103-109, April.
    2. de Mendonça, Helder Ferreira & de Oliveira, Diego S.P., 2019. "Firms' confidence and Okun's law in OECD countries," Economic Modelling, Elsevier, vol. 78(C), pages 98-107.
    3. Guisinger, Amy Y. & Hernandez-Murillo, Ruben & Owyang, Michael T. & Sinclair, Tara M., 2018. "A state-level analysis of Okun's law," Regional Science and Urban Economics, Elsevier, vol. 68(C), pages 239-248.
    4. Martin Schmidt, 2003. "The relative adjustment of wages and prices: direct tests within a multiple-equation system," Applied Economics, Taylor & Francis Journals, vol. 35(8), pages 985-997.
    5. Naci Mocan & Kaj Gittings, 2010. "The Impact of Incentives on Human Behavior: Can We Make it Disappear? The Case of the Death Penalty," NBER Chapters, in: The Economics of Crime: Lessons For and From Latin America, pages 379-418, National Bureau of Economic Research, Inc.
    6. Bottazzi, Laura & Pesenti, Paolo & van Wincoop, Eric, 1996. "Wages, profits and the international portfolio puzzle," European Economic Review, Elsevier, vol. 40(2), pages 219-254, February.
    7. Ahmet E. Kocagil & Kudret Topyan, 1997. "An empirical note on demand for speculation and futures risk premium: A Kalman Filter application," Review of Financial Economics, John Wiley & Sons, vol. 6(1), pages 77-93.
    8. Kocagil, Ahmet E. & Topyan, Kudret, 1997. "An empirical note on demand for speculation and futures risk premium: A Kalman Filter application," Review of Financial Economics, Elsevier, vol. 6(1), pages 77-93.
    9. Dominique Tremblay, 2002. "Salaire réel, chocs technologiques et fluctuations économiques," Staff Working Papers 02-42, Bank of Canada.
    10. Marczak, Martyna & Gómez, Víctor, 2015. "Cyclicality of real wages in the USA and Germany: New insights from wavelet analysis," Economic Modelling, Elsevier, vol. 47(C), pages 40-52.
    11. Nicholas Apergis & Alexandros Panethimitakis, 2011. "Stylised facts of Greek business cycles: new evidence from aggregate and across regimes data," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 3(2), pages 147-165.
    12. Paramsothy Silvapulle & Imad A. Moosa & Mervyn J. Silvapulle, 2004. "Asymmetry in Okun's law," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(2), pages 353-374, May.

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