Using data for the years 1968–84 from the Michigan Panel Study of Income Dynamics, this study analyzes differential flexibility in nominal wages by tenure and occupation. The results show that short-run sensitivity to both unemployment and inflation is confined largely to low-tenure workers and that the cyclical upgrading and downgrading of employment opportunities makes a significant contribution to flexibility in nominal wages. The findings are consistent with a model in which long-term commitments insulate the wages of senior workers from short-run swings in economic conditions and in which nominal wages are largely noncyclical but employment opportunities shrink and expand.
Get full access to this article
View all access options for this article.
References
1.
BilsMark J.1985. “Real Wages over the Business Cycle: Evidence from Panel Data.”Journal of Political Economy, Vol. 93, No. 4 (August), pp. 666–89.
2.
ColemanThomas. 1984. “Essays on Aggregate Labor Market Business Cycle Fluctuations.” Ph.D. diss., University of Chicago.
3.
GordonRobert J.1982. “Why U.S. Wage and Employment Behavior Differs from That in Britain and Japan.”Economic Journal, Vol. 92, No. 365 (March), pp. 13–44.
4.
HahnF. H., and SolowR. M.1986. “Is Wage Flexibility a Good Thing?” In BeckermanW., ed., Wage Rigidity and Unemployment. Baltimore: Johns Hopkins University Press.
5.
HeckmanJames J., and SedlacekGuilherme. 1985. “Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-Selection in the Labor Market.”Journal of Political Economy, Vol. 93, No. 6 (December), pp. 1077–1125.
6.
HsiaoCheng. 1986. Analysis of Panel Data. New York: Cambridge University Press.
7.
KeanMichaelMoffittRobert, and RunkleDavid. 1988. “Real Wages over the Business Cycle: Estimating the Impact of Heterogeneity with Micro Data.”Journal of Political Economy, Vol. 96, No. 6 (December), pp. 1232–66.
8.
MitchellDaniel J. B.1986. “Explanations of Wage Inflexibility: Institutions and Incentives.” In BeckermanW., ed., Wage Rigidity and Unemployment. Baltimore: Johns Hopkins University Press.
9.
OkunArthur M.1982. Prices and Quantities: A Macroeconomic Analysis. Washington, D.C.: Brookings Institution.
10.
OkunArthur M.1973. “Upward Mobility in a High Pressure Economy.”Brookings Papers on Economic Activity, Vol. 1, pp. 207–42.
11.
PerryG. L.1986. “Policy Lessons from the Post-War Period.” In BeckermanW., ed., Wage Rigidity and Unemployment. Baltimore: Johns Hopkins University Press.
12.
PerryG. L.1980. “Inflation in Theory and Practice.”Brookings Papers on Economic Activity, Vol. 1, pp. 229–52.
13.
StiglitzJoseph E.1986. “Theories of Wage Rigidity.” In ButkiewiczJamesKofordKenneth K., and MillerJeffrey B., eds., Keynes' Economic Legacy. New York: Praeger.
14.
VromanWayne. 1977. “Worker Upgrading and the Business Cycle.”Brookings Papers on Economic Activity, Vol. 1, pp. 229–52.
