Wage cyclicality across time and frequencies

Abstract

Employing wavelet analysis, this paper documents how the cyclicality of real wages has evolved over time and at different business cycle frequencies in US. We use individual-level data from the CPS to construct the composition bias corrected quarterly wage series using Haefke et al. (2013)’s methodology. Utilizing continuous wavelet tools, we find that the cyclicality of wages for all the workers as well as new hires has increased over time. Additionally, we find that the increase in cyclicality is prevalent across all frequencies. This decline in wage rigidity over business cycles relates to the broader structural changes in the labour market and also has implications for labour search framework.