Changes in the Cyclical Behavior of Real Wage Rates, 1870–1990

Abstract

A modern household's consumption bundle is more finished than that of a typical worker in the past: the average consumption good passes through more stages of production before purchase. This has affected the cyclical behavior of wages relative to the price of the consumption bundle because wages are more procyclical relative to prices of more-finished goods. Nowadays real consumption wages are procyclical. They were less procyclical before the Second World War, and they may have been acyclical or even countercyclical before the First World War.

The Great Depression and the Friedman-Schwartz Hypothesis

“…Aggregate data for the manufacturing sector do provide some evidence of a rise in the real wage after 1929. For example, according to Cole and Ohanian (1999 , Table 11) the manufacturing wage compiled by Hanes (1996), converted to real terms using the GNP deflator, is about 5 percent above trend during the period 1930-1932. 22 However, the work of Bresnahan and Raff (1991), Lebergott (1989), and Margo (1993) As emphasized by Bordo, Erceg, and Evans (2001), there is another issue that must be addressed before one can draw definite conclusions from the behavior of manufacturing real wages.…”

“…It is constructed as follows. Total compensation from NIPA, available at an annual frequency starting from 1929, is divided by our measure of hours worked and interpolated to obtain quarterly figures using the related series of average hourly earnings in manufacturing from Hanes (1996). For the period 1923-1928 we used average hourly earnings in manufacturing from Hanes (1996).…”

Re-Examining the Contributions of Money and Banking Shocks to the U.S. Great Depression

“…We use Hanes's (1996) compilation of the Conference Board's manufacturing wage data as the measure of the wage for the distorted sector. This wage is shown in Table 5 for each year of the Great Depression.…”

The Cyclical Behaviour of Real Wages: Evidence from Australia

“…The most recent evidence shows that the cyclical behaviour of real wages has changed, from being countercyclical during the interwar period, to procyclical in the postwar era. For instance, studies by, inter alia, Solon et al [21], Kydland [22], Hanes [23], den Haan [24], den Haan and Sumner [25], and Huang et al [26], all show that the correlation between real wages and output have altered from being countercyclical during the interwar period to being procyclical during the postwar period, thereby supporting the contention espoused by real business cycle theorists over the postwar period.…”