Real earnings and business cycles: new evidence

Citation

Hart RA, Malley JR & Woitek U (2009) Real earnings and business cycles: new evidence. Empirical Economics, 37 (1), pp. 51-71. https://doi.org/10.1007/s00181-008-0222-1

Abstract
In the time domain, the observed cyclical behavior of the real wage hides a range of economic influences that give rise to cycles of differing lengths and strengths. This may serve to produce a distorted picture of wage cyclicality. Here, we deploy frequency domain methods that allow us to asses the relative contribution of cyclical frequency bands on real wage earnings. Earnings are decomposed into standard and overtime components. We also distinguish between consumption and production wages. Frequency domain analysis is carried out in relation to wages alone and to wages in relation to output and employment cycles. Our univariate analysis suggests that, in general, the dominant cycle followed by output, employment, real consumer and producer wages and their componenents is 5-7 years. Consistent with previous findings reported in the macro literature, our bivariate results show that the various measures of the wage are generally not linked to the employment cycle. However, and in sharp contrast with previous macro-studies we find strong procyclical links between the consumer wage and its overtime components and the output cycle, especially at the 5-7 years frequency.

Keywords
Business cycles; real wages; co-movement; spectral analysis; Business enterprises Arts and craft Great Britain; Economic development Mathematical models; Business cycles

Journal
Empirical Economics: Volume 37, Issue 1

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