Content area
Full Text
Empirical Economics (2005) 30:619642DOI 10.1007/s00181-005-0253-9
International Monetary Fund, 700 Nineteenth St, N.W., Washington D.C. 20431, USA
(e-mail: [email protected])First version received: June 2003/Final version received: June 2004Abstract. The time-series analysis of disaggregated data for a sample of 28
private industries veries the prevalence and sources of asymmetry in
aggregate data. The evidence indicates that asymmetry in the cyclical
behavior of the real wage is widespread across the U.S. economy. The
reduction in the real wage during recessions appears pronouncedly larger
compared to the increase in the real wage during expansions in many
industries. Across industries, price ination increases faster compared to
nominal wage ination in the face of higher demand variability. Price
exibility moderates the increase in the real wage and output growth during
expansions. In contrast, prices appear more downwardly rigid compared to
the nominal wage in the face of demand variability. Price rigidity exacerbates
the reduction in the real wage and output contraction during recessions. The
combined evidence supports the implications of the sticky-price explanation
of business cycles.Key words: Asymmetry, sticky-wage, sticky-price, cyclical real wageJEL classication: E32, E31, E241. IntroductionPrevious research has produced strong evidence on variation in the cyclical
behavior of the aggregate real wage with economic conditions in the United
States. Using annual data in the post-war sample period 1955-1991, the evidence of Kandil (1996) dierentiates the cyclical response of the real wage to
expansionary and contractionary aggregate demand shocks. The real wageThe author thanks an anonymous referee for helpful comments on an earlier draft of the paper.
The views expressed in this paper are those of the author and should not be interpreted as those of
the International Monetary Fund.Countercyclical or procyclical real wages?
A disaggregate explanation of aggregate asymmetryMagda Kandil620 M. Kandildecreases during recessions. In contrast, the real wage does not increase
during periods of expansionary demand. The change in the cyclical behavior
of the real wage highlights the relative exibility of nominal wages and prices
during booms and recessions. Both the nominal wage and price are more
exible in response to expansionary demand shocks compared to
contractionary shocks. The price level appears, however, more downwardly
rigid compared to the nominal wage during recessions. Variation in the
cyclical behavior of the real wage correlates with larger output contractions
compared to...