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

Abstract

ABSTRACT:I analyze the cyclicality of real wages for male workers within employer-employee matches over the period for Germany, which is known to have a relatively rigid labor market. Using individual based micro-data from the German Socio-Economic Panel Study (SOEP), I compare different wage measures: the standard hourly wage rate, hourly wage earnings including overtime and bonus payments, and the effective wage, which takes into account not only paid overtime, but also unpaid working hours. The hourly wage rates of salaried workers with unpaid overtime are shown to exhibit strong procyclicality. Despite acyclical wage rates, salaried workers without unpaid hours but with income from extra payments, such as bonuses, experienced procyclical earnings movements. Monthly earnings were also procyclical for hourly paid workers who received overtime payments. The procyclicality of earnings revealed for the rigid labor market in Germany, is clearly lower than in the U.K., but of comparable size with the one in the U.S.. JEL:E32, J31

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