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Labor Quality and the Cyclicality of Real Wages

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Abstract

Because labor quality changes over the business cycle, the cyclicality of aggregate wages cannot reflect the true cyclical behavior of the price of labor inputs. To control for changes in labor quality, many researchers have examined the cyclical behavior of the price of labor inputs using microdata sets with mixed results. In this paper, I develop a hedonic pricing method to examine the cyclicality of real wages and implement it using the U.S. Current Population Survey (CPS) data. The flexibility of the hedonic method and the large sample size of the CPS data make it possible to replicate and reconcile the results from a number of major studies on a single data set. I find that the lower the frequency of the data, the greater is the procyclicality of real wages. This pattern has not been documented and cannot be explained by current business cycle theories.

Suggested Citation

  • Liu, Haoming, 1997. "Labor Quality and the Cyclicality of Real Wages," University of Western Ontario, Departmental Research Report Series 9712, University of Western Ontario, Department of Economics.
    • Handle: RePEc:uwo:uwowop:9712
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    File URL: https://ir.lib.uwo.ca/cgi/viewcontent.cgi?article=1428&context=economicsresrpt
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    Keywords

    LABOUR MARKET; BUSINESS CYCLES; WAGES;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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