Real wage cyclicality in the Eurozone before and during the Great Recession: Evidence from micro data

Abstract

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Reallocation and the Role of Firm Composition Effects on Aggregate Wage Dynamics

“…We use the employer-employee data from INPS to replicate and extend previous work on the rising importance of worker composition effects in explaining aggregate wage dynamics over time and particularly during and after the recent crisis (Daly and Hobijn, 2016;Verdugo, 2016).…”

“…This holds true even for the recent recessionary period, despite the duration and the severity of the crisis. Common explanations include wage rigidities resulting from various market frictions -see Adamopoulou et al (2016); Verdugo (2016); Devicienti, Maida and Sestito (2007) and Dickens et al (2007). However, the existing literature has also provided evidence that low-paid workers were more severely affected during the recent downturn and therefore composition effects might have played a particularly important role in shaping aggregate wage dynamics -see, for instance, Daly and Hobijn (2016) for the US and Verdugo (2016) for the Eurozone countries.…”

Countercyclical Endogenous Uncertainty Shocks, Efficiency Wages and Procyclical Precautionary Labor Productivity

“…Empirically, these are more or less procyclical, with employment n t being significantly more variable than observed labor productivity α t = y t /n t , whereas the evidence on real wage ω t seems to be mixed, as it may be only mildly procyclical and in some cases actually acyclical or even mildly anticyclical (see e.g. Basu Verdugo (2016)). The difficulties to obtain such properties within standard neoclassical models or new-Keynesian models with nominal rigidities have been a significant motivation to rely on exogenous shocks to the global productivity parameter A in standard RBC models.…”

“…By contrast, these variables are empirically more or less procyclical, with employment (hours), output, being significantly more variable than observed labor productivity, while evidence on real wages seems to be more ambiguous, as they may be strongly or only mildly procyclical, and in some cases actually acyclical or even a little countercyclical (see e.g. Basu (1996), Uhlig (2004), Verdugo (2016)). The way out in RBC models has been to postulate exogenous (unexplained) stochastic shocks to either the global 1 productivity parameter A t or to analogous technological parameters characterizing the input (capital and/or labor) productivities in the aggregate production function F .…”

On the cyclicality of real wages and wage differentials

“…In fact, the …ndings from the literature suggest that the estimated wage cyclicality depends on this structure: real wages are estimated to be mildly to strongly procyclical when wages are assumed to depend only on the current unemployment rate [e.g. Bils (1985), Keane et al (1988), Shin (1994), Solon et al (1994), Shin and Solon (2006) and, more recently, Verdugo (2016)] whereas they are estimated to be acyclical when the real wage of each individual, in addition to the current unemployment rate (common across all wages), is assumed to also depend on 'appropriate' lagged values of the unemployment rate [e.g. Beaudry and DiNardo (1991)].…”