Real Wage Cyclicality of Job Stayers, Within-Company Job Movers, and Between-Company Job Movers

Abstract

Using the British New Earnings Survey Panel Data for 1975-2001, the authors esti mate the wage cyclicality (the degree to which wage levels rise and fall with economic upturns and downturns) of three groups: job stayers, within-company job movers, and between-companyjob movers. Wages of internal movers, they find, were slightly more procyclical, and wages of external movers considerably more procyclical, than those of stayers. The greater cyclicality of movers' wages is particularly apparent for private sector workers and persons not covered by collective agreements. Neverthe less, because job stayers comprised about 90% of all observations in this large sample of British workers, the procyclicality of their wages was the predominant determinant of the overall procyclical pattern found across all groups. Thus, the analysis does not support the implication of some rigid wage models that employers use job title changes to adjust wages to the business cycle. Increased flexibility is a prime objective of government labor market policy in many economies. Against a recent back ground of relatively sluggish economic per formance, it has been especially emphasized by policy-makers of member countries within the European Union. Central to the goal of flexibility has been the attainment of overall wage cyclically, since the closeness of the tie between wages and market conditions determines the extent to which adverse shocks eventuate in wage adjustments rather than job losses. Total wage adjustment de rives from three primary sources: the wage changes of workers (a) within single jobs, (b) moving between jobs within the same company, and (c) moving between different companies. Evidence from panel microdata shows that real wage changes of between-company movers are more procyclical than wages of within-company stayers (Bils 1985; Shin 1994). Also, real wages of alljob movers?that is, within-and between-companyjob movers combined?have been found to be more procyclical than wages of job stayers (Hart 2006). However, these studies fall short of providing detailed evidence concerning the process of internal real wage cyclicality. Is within-company wage cyclicality mainly the result of internal promotions and demo tions, with wage stickiness prevailing within

The cyclicality of effective wages within employer–employee matches in a rigid labor market

“…This suggests that higher flexibility arises for workers with wages above the union wage or not covered by collective bargaining, as salaried workers with unpaid overtime receive higher average earnings, and are supposedly less likely to be covered by union wage setting. 23 Hence, this results provides indirect support for the findings of Devereux and Hart (2006) for the U.K., where wage cyclicality is much higher among workers uncovered by collective bargaining. Moreover, the strong procyclicality of effective wages for salaried unpaid overtime workers supports the notion that unpaid overtime is prevailing during recessions, and hence decreases the real hourly compensation of the total work done, when unemployment is rising.…”

“…Among hourly paid workers, 41% suffered a real wage reduction, whereas 52% gained from a wage rise. 20 These numbers compare to 51% of male (53% of female) job stayers in the U.K. who experienced a wage increase in 1997, and to 29% (males) and 27% females who suffered a reduction in their real wage (Devereux and Hart, 2006). 20 Taking into account adjustments of working hours revealed very similar numbers: 53% (54%) of salaried workers experienced an increase in their real monthly earnings (including overtime and extra payments), whereas 34% (35%) experienced an earnings cut.…”

“…A more detailed analysis by differentiating between within-company job movers, between-company job movers and job stayers is provided by Devereux and Hart (2006). 7 Using also the British NESPD on fulltime workers, they find wages of job stayers to be strongly procyclical, although the procyclicality is more pronounced among internal movers, and strongest among external movers.…”

“…Both pay cuts and pay rises were observed in the sample. With "no wage change" being defined as a change in real hourly wage between two years within the bounds of +/-1% as in Devereux and Hart (2006), 55% of salaried workers in the sample experienced an increase in their standard hourly real wage, whereas 35% experienced a wage cut. Among hourly paid workers, 41% suffered a real wage reduction, whereas 52% gained from a wage rise.…”

Wage cyclicality: Evidence from Spain using social security data

“…The most common solution used to address such composition bias has been to estimate a wage regression in first differences (Bils 1985;Solon et al 1994;Shin 1994;Devereux 2001;Devereux and Hart 2006). 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.…”