Wage Cyclicality Revisited: The Role of Hiring Standards

We use a decade of online job ads to get robust estimates for real wage cyclicality, controlling for job title and firm fixed effects as well as hiring standards, i.e. posted requirements for applicants. Our estimates lie in the high range of semi-elasticities of real wages to unemployment rate found in the literature. Controlling for hiring standards is conceptually important to appropriately compare wages of the same position aiming at hiring the same kind of worker in different phases of the business cycle. Moreover, as hiring standards are countercyclical, omitting them leads to the underestimation of real wage procyclicality. To rationalize the facts, we calibrate a search and matching model with aggregate and idiosyncratic match productivity shocks in which employers set hiring standards. Simulations from the model and analytical results show both highly procyclical wages and countercyclical hiring standards under typical parameterizations.