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Wage Cyclicality and Labor Market Sorting

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Abstract

This paper uses a measure of skill mismatch to separate wage flexibility from confounding variation in wages driven by differences in job quality over the business cycle. I first show that the high cyclicality of job switchers' wages goes beyond cyclical movements in skill mismatch. Then I uncover large differences in wage cyclicality across the skill mismatch distribution. Among incumbent workers, wages are acyclical in good matches but procyclical in poor matches, in particular for overqualified workers.

Citation

Figueiredo, Ana. 2022. "Wage Cyclicality and Labor Market Sorting." American Economic Review: Insights, 4 (4): 425-42. DOI: 10.1257/aeri.20210161

Additional Materials

JEL Classification

  • E32 Business Fluctuations; Cycles
  • J24 Human Capital; Skills; Occupational Choice; Labor Productivity
  • J31 Wage Level and Structure; Wage Differentials
  • J41 Labor Contracts