Keywords: Wage cyclicality, firm-level data
Abstract: This paper tests the hypothesis that firms adjust to the business
cycle by altering employment through promotion and hiring and holding
the salary structure and salaries assigned to jobs relatively
constant. Two comprehensive firm-level panel datasets are used to
examine salary setting and worker movement within firms. The salary
structure is found to be rigid whereas promotion rates are cyclically
sensitive. In contrast to the hypothesis, wage cyclicality in these
two firms is driven by changes in salaries associated with jobs rather
than by worker movement. An additional finding is that salaries in
the two firms are countercyclical.
Full paper (736 KB PDF)
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Last update: July 16, 1997