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On the Cyclicality and Stability of Real Earnings

Author

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  • Hart, Robert A.

    (University of Stirling)

  • Malley, James R.

    (University of Glasgow)

Abstract

We show in this paper that important insights into the cyclical behavior 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 BLS published and unpublished statistics are used to decompose average earnings into (i) the straight-time wage rate, (ii) the ‘mark-up’ needed to achieve an overtime workers earnings rate,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.

Suggested Citation

  • Hart, Robert A. & Malley, James R., 1999. "On the Cyclicality and Stability of Real Earnings," IZA Discussion Papers 45, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp45
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    Cited by:

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    2. Gilles Saint Paul, 2000. "Flexibility vs. rigidity: Does Spain have the worst of both worlds?," Economics Working Papers 450, Department of Economics and Business, Universitat Pompeu Fabra.
    3. Josef Zweimueller & Rudolf Winter-Ebmer, "undated". "Firm-specific Training: Consequences for Job Mobility," IEW - Working Papers 037, Institute for Empirical Research in Economics - University of Zurich.
    4. Amuedo-Dorantes, Catalina & Kimmel, Jean, 2005. "Moonlighting Behavior over the Business Cycle," IZA Discussion Papers 1671, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Cyclical behavior of wages; straight-time wages; overtime; overtime premium;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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