Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/172291
Authors: 
Bauer, Anja
Lochner, Benjamin
Year of Publication: 
2017
Series/Report no.: 
FAU Discussion Papers in Economics 23/2017
Abstract: 
Using employer-employee data from Germany, this paper analyzes the relationship between wages and past and contemporaneous labor market conditions. Specifically, we test the implications of implicit contract models (Beaudry and DiNardo, 1991) and an on-the-job search model (Hagedorn and Manovskii, 2013) for the wage formation of different worker types over the business cycle. The results are mixed: On the one hand, the data suggest that wages depend on labor market conditions when a match is formed - as contract theories postulate. On the other hand, past labor market conditions also affect contemporaneous wages through the evolution of match quality over a worker's job history - the main hypothesis of the on-the-job-search model. Using cyclical variation in labor market tightness to control for match quality, as in Hagedorn and Manovskii (2013), we find that previous evidence for the excess wage cyclicality of job changers can be entirely explained by cyclical variation of match quality. Refining the selection model by taking into account occupational mobility within employer-employee matches, we also find no excess wage cyclicality for new hires from unemployment - the key worker type's wage for understanding unemployment fluctuations in matching models.
Subjects: 
Business Cycle
Wage
Wage Rigidity
Implicit Contracts
Match Quality
JEL: 
E24
E32
J31
J41
Document Type: 
Working Paper

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