On the Cyclicality and Stability of Real Earnings

27 Pages Posted: 16 May 2000

See all articles by Robert A. Hart

Robert A. Hart

University of Stirling - Department of Economics; Institute for the Study of Labor (IZA)

Jim Malley

University of Glasgow - Department of Economics

Date Written: June 1999

Abstract

We show in this paper that important insights into the cyclical behaviour of wages can be gained by dividing (real) average hourly earnings into their straight-time hourly wage and overtime components. Our motivation is based on the idea of employment-contingent contracts. BLS published and unpublished statistics are used to decompose average earnings into (i) the straight-time wage rate, (ii) the "mark-up" needed to achieve an overtime worker's earnings rate, and (iii) the proportion of workers working overtime. Using monthly manufacturing data from 1962?1997, cyclicality measures of these components are based on contemporaneous bivariate correlations using four alternative detrending methods while stability is examined using recursive estimation and testing methods. While the wage rate is generally acyclical and unstable, the other two components are highly pro-cyclical and relatively stable.

JEL Classification: J3, J41

Suggested Citation

Hart, Robert A. and Malley, Jim, On the Cyclicality and Stability of Real Earnings (June 1999). Available at SSRN: https://ssrn.com/abstract=169070 or http://dx.doi.org/10.2139/ssrn.169070

Robert A. Hart (Contact Author)

University of Stirling - Department of Economics ( email )

Stirling, Scotland FK9 4LA
United Kingdom
+44 1786 467 471 (Phone)
+44 1786 467 469 (Fax)

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Jim Malley

University of Glasgow - Department of Economics ( email )

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom
+44 141 330 4617 (Phone)
+44 141 330 4940 (Fax)

HOME PAGE: http://www.gla.ac.uk/economics/malley/

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