Real Wages and the Business Cycle: Accounting for Worker, Firm, and Job Title Heterogeneity

Abstract

Using a longitudinal matched employer-employee data set for Portugal over the [1986][1987][1988][1989][1990][1991][1992][1993][1994][1995][1996][1997][1998][1999][2000][2001][2002][2003][2004][2005] period, this study analyzes the heterogeneity in wages responses to aggregate labor market conditions for newly hired workers and existing workers. Controlling simultaneously for worker and firm specific effects, the results show that entry wages are much more procyclical than current wages. A one-point increase in the unemployment rate decreases wages of newly hired male workers by around 2.5% and by just 1.5% for workers in continuing jobs. For female workers these same effects are 2.3% and 1.1%, respectively. Thus, our empirical evidence does not seem to lend support to the hypothesis of wage stickiness as an explanation for the unemployment volatility puzzle.JEL classification: D21; E24; E32; J31 Keywords: wage cyclicality; hires; fim-specific effects * We thank Lucena Vieira for excellent computational assistance and Fundação para a Ciência e Tecnologia for financial support (research grant POCTI/ECO/35147/99). The data used in this article are confidential but the authors' access is not exclusive.

Managers' mobility, trade performance, and wages

“…24 Carneiro et al (2012) find that average (log) hourly earnings (in real Euros) are 1.34 for men and 1.13 for women, in the 1986-2005 period. Workers' tenure and wage are described in the Data Appendix.…”

“…Quadros de Pessoal has been used by, amongst others, Cabral and Mata (2003) to study the evolution of the firm size distribution; by Blanchard and Portugal (2001) to compare the U.S. and Portuguese labor markets in terms of unemployment duration and worker flows; by Cardoso and Portugal (2005) to study the determinants of both the contractual wage and the wage cushion (difference between contractual and actual wages); by Carneiro et al (2012) who, in a related study, analyze how wages of newly hired workers and of existing employees react differently to the business cycle; by Martins (2009) to study the effect of employment protection on worker flows and firm performance. See these papers also for a description of the peculiar features of the Portuguese labor market.…”

“…However, the exact least-square solution to this problem can be found using an algorithm, based on the "zigzag" or full Gauss-Seidel algorithm, proposed by Guimarães and Portugal (2010). We use, for our estimations, the Stata user-written routine reg2hdfe implementing Guimarães and Portugal (2010)'s algorithm; this routine has also been used in Carneiro et al (2012), and Martins and Opromolla (2012). The main advantage of this routine is the ability to fit linear regression models with two or more high-dimensional fixed effects under minimal memory requirements.…”

Wage cyclicality: Evidence from Spain using social security data

“…The share of observations in the first year of tenure is larger than in other countries. For instance, this share accounts for 16.4 % of annual observations in Portugal throughout 1986-2007 (Carneiro et al 2012). 13 This polarization in the level of job tenure mirrors the duality in the Spanish labour market referred to in the previous section.…”

“…However, this strategy restricts the sample to individuals who work in two consecutive periods-or years given that most studies are based on annual or bi-annual surveys. For this reason, studies that estimate wage cyclicality for newly-hired workers-or any group of workers with weak labour force attachment-run a wage equation in levels (Carneiro et al 2012;Haefke et al 2013;Kudlyak 2013). By following this approach, I can exploit the full sample of workers including job stayers, newly-hired workers and job-movers.…”