Manufacturing Earnings and Cycles: New Evidence



provided by Research Papers in Economics

Manufacturing Earnings and Cycles: New
Evidence*

Robert A. Hartt

Department of Economics, University of Stirling

Janies R. Malley

Department of Economics, University of Glasgow
Ulrich Woitek

Department of Economics, University of Munich

February 24, 2003

Abstract

In the time domain, the observed cyclical behavior of the real wage
hides a range of economic influences that give rise to cycles of differing
lengths and strengths. This may serve to produce a distorted picture of
wage cyclicality. Here, we employ and develop frequency domain meth-
ods that allow us to assess the relative contribution of cyclical frequency
bands on real wage earnings. Earnings are decomposed into standard
and overtime components. We also distinguish between consumption
and production wages. Frequency domain analysis is carried out in re-
lation to wages alone (the univariate case) and to wages in relation to
a selected range of cyclical economic indicators (multivariate). We es-
tablish that all key components of real wages are strongly pro-cyclical
but display significant co-variations with more than one frequency band.
Moreover, components are by no means uniformly associated with each
of the chosen proxies for the cycle.

JEL Classification: E32, .J31

* We are grateful to Michael Burda, Christian Dustmann, Campbell Leith, Jacques Melitz,
Albrecht Ritschl, Harald Uhlig, and seminar participants at Humboldt University and the
Glasgow-Strathclyde Joint Seminar in Macroeconomics for helpful comments and sugges-
tions on this and earlier versions of the paper. We would also like to thank John Stinson
and Sharon Gibson of the Bureau of Labor Statistics, U.S. Department of Labor for provid-
ing unpublished data relating to hours of work and consumer prices respectively.

I Corresponding Author: Robert Hart, Department of Economics, University of Stirling,
Stirling FK9 4LA, UK, email:
[email protected].



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