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  3. American Economic Review
  4. May 2017
  5. Composition and Aggregate Real Wage Growth

Composition and Aggregate Real Wage Growth

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Abstract

Aggregate real wages exhibit less procyclicality than most macroeconomic models predict. We use 35 years of Current Population Survey data to confirm that the puzzling behavior of wages largely owes to changes in the composition of the employed over the business cycle. This composition effect relates to changes in both the number and the relative wage levels of those entering and exiting. The changing gap in wages of entrants and exiters is especially important for the unemployed. A large part of this wage gap is due to differences in average Mincer residuals between entrants and exiters.

Citation

Daly, Mary C., and Bart Hobijn. 2017. "Composition and Aggregate Real Wage Growth." American Economic Review, 107 (5): 349-52. DOI: 10.1257/aer.p20171075

Additional Materials

JEL Classification

  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • E32 Business Fluctuations; Cycles
  • J31 Wage Level and Structure; Wage Differentials
  • J64 Unemployment: Models, Duration, Incidence, and Job Search