Why Are Wages Cyclical in the 1970's?


This paper investigates cyclicality in real wages between 1969 and 1982,
using 14 years of data from the Panel Survey of Income Dynamics. First, it
investigates the extent to which movements in and out of the labor market
created apparent wage cyclicality. Second, it investigates whether cyclical
movements of workers between heterogeneous wage sectors within the labor market
created cyclicality. Little evidence of the first effect is found. The second
effect is much more important, and cyclicality clearly occurs in the movement
of workers between different labor market sectors. However, sector selection
is not correlated with wage determination. Thus, individual wage change
estimates of cyclicality need to control for sector location, but need not
account for sector selection. The third conclusion of the paper is that
cyclicality is present in real wages even within sectors over this time period,
and is the result of both cyclicality in overall wage levels (cyclicality in
the constant term in wage equations), as well as in the coefficients associated
with particular worker characteristics.

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Journal of Labor Economics, Vol. 8, No. 1, Part 1, January 1990
Working Papers