{"id":634,"date":"2017-09-30T01:30:28","date_gmt":"2017-09-30T01:30:28","guid":{"rendered":"http:\/\/mitmgmtfaculty.mit.edu\/japarker\/?page_id=634"},"modified":"2025-02-20T18:34:03","modified_gmt":"2025-02-20T18:34:03","slug":"measuring-cyclicality-2","status":"publish","type":"page","link":"https:\/\/mitmgmtfaculty.mit.edu\/japarker\/measuring-cyclicality-2\/","title":{"rendered":"Summary: Measuring the Cyclicality of Real Wages: How Important is the Composition Bias?"},"content":{"rendered":"<div id=\"pl-634\"  class=\"panel-layout\" ><div id=\"pg-634-0\"  class=\"panel-grid panel-no-style\" ><div id=\"pgc-634-0-0\"  class=\"panel-grid-cell\" ><div id=\"panel-634-0-0-0\" class=\"so-panel widget widget_mit-pf-wysiwyg widget_mit_pf_wysiwyg panel-first-child panel-last-child\" data-index=\"0\" ><h2 class=\"widget-title\">Measuring the Cyclicality of Real Wages: How Important is the Composition Bias?<\/h2><div class=\"textwidget\"><center>\"Measuring the Cyclicality of Real Wages: How Important is the Composition Bias?\"\u00a0<br \/>with Gary Solon and Robert Barsky\u00a0<br \/><em>Quarterly Journal of Economics<\/em>, Vol 109 No 1, (February 1994), 1-25.<\/center><center><\/center><center><img decoding=\"async\" src=\"http:\/\/japarker.scripts.mit.edu\/docs\/rwbc.gif\" \/><p>\u00a0<\/p><\/center><p><b>Abstract<\/b><b><\/b><\/p><p>In the period since the 1960s, as in other periods, aggregate time series on real wages have displayed only modest cyclicality (blue starred line above). Macroeconomists therefore have described weak cyclicality of real wages as a salient feature of the business cycle. Contrary to this conventional wisdom, our analysis of longitudinal microdata indicates that real wages have been substantially procyclical since the 1960s (red dash line above). We show that the true procyclicality of real wages is obscured in aggregate time series because of a composition bias: the aggregate statistics are constructed in a way that gives more weight to low-skill workers during expansions than during recessions.<\/p><p>The article on\u00a0<a href=\"http:\/\/www.jstor.org\/stable\/pdfplus\/2118426.pdf\" target=\"_blank\" rel=\"noopener noreferrer\">JSTOR<\/a>, or a slightly older\u00a0<a href=\"http:\/\/www.nber.org\/papers\/w4202.pdf\" target=\"_blank\" rel=\"noopener noreferrer\">NBER WP version<\/a>.<\/p><p><a href=\"http:\/\/japarker.scripts.mit.edu\/docs\/rwbcdata.raw.z\">The PSID data<\/a>\u00a0for all men and women in the balanced sample.<\/p><p><a href=\"https:\/\/www.dropbox.com\/s\/kd23ialsycup1n1\/rwbcprog.zip?dl=1\" target=\"_blank\" rel=\"noopener noreferrer\">The OSIRIS programs<\/a>\u00a0for data construction and regressions.<\/p><p>Average real wage growth for the balanced panel of men is reported in NBER Working Paper 4202 (and can be calculated from the balanced panel available above). The time dummies used to construct the cyclicality of the real wage for the unbalanced panel (see p.13 and Table II) are:<\/p><pre>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Avg PSID Real Wage Changes\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 (1)\u00a0\u00a0\u00a0\u00a0 (2)\u00a0\u00a0\u00a0\u00a0 (3)\u00a0\u00a0\u00a0\u00a0 (4)\u00a0\u00a0\u00a0\u00a0 (5)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\n\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Unemployment\u00a0\u00a0\u00a0 Men\u00a0\u00a0\u00a0\u00a0 Men\u00a0\u00a0\u00a0\u00a0 Women\u00a0\u00a0 Women\u00a0\u00a0 Every1\u00a0 Ch Log\u00a0\nYear\u00a0\u00a0\u00a0 Rate\u00a0\u00a0\u00a0 Change\u00a0 Unwghtd Wghtd\u00a0\u00a0 Unwgtd\u00a0 Wghtd\u00a0\u00a0 Wghtd\u00a0\u00a0 BEA Wage\n1968\u00a0\u00a0\u00a0 0.036\u00a0\u00a0 -0.002\u00a0 0.10317 0.08416 0.09705 0.07486\u00a0 0.04698\u00a0 0.01480\n1969\u00a0\u00a0\u00a0 0.035\u00a0\u00a0 -0.001\u00a0 0.08546 0.07610 0.09111 0.08776\u00a0 0.05281\u00a0 0.00556\n1970\u00a0\u00a0\u00a0 0.049\u00a0\u00a0\u00a0 0.014\u00a0 0.07924 0.06142 0.04743 0.04317\u00a0 0.04501\u00a0 0.00604\n1971\u00a0\u00a0\u00a0 0.059\u00a0\u00a0\u00a0 0.010\u00a0 0.06820 0.05035 0.06136 0.06061\u00a0 0.03019\u00a0 0.00863\n1972\u00a0\u00a0\u00a0 0.056\u00a0\u00a0 -0.003\u00a0 0.08741 0.08004 0.06191 0.05594\u00a0 0.06469\u00a0 0.01315\n1973\u00a0\u00a0\u00a0 0.049\u00a0\u00a0 -0.007\u00a0 0.07308 0.06733 0.06478 0.07892\u00a0 0.03482\u00a0 0.00771\n1974\u00a0\u00a0\u00a0 0.056\u00a0\u00a0\u00a0 0.007\u00a0 0.07035 0.05688 0.06722 0.05296\u00a0 0.02019 -0.00461\n1975\u00a0\u00a0\u00a0 0.085\u00a0\u00a0\u00a0 0.029\u00a0 0.01755 0.01112 0.03955 0.05480 -0.00687\u00a0 0.00410\n1976\u00a0\u00a0\u00a0 0.077\u00a0\u00a0 -0.008\u00a0 0.06820 0.06728 0.05524 0.05601\u00a0 0.04071\u00a0 0.01157\n1977\u00a0\u00a0\u00a0 0.071\u00a0\u00a0 -0.006\u00a0 0.07290 0.06343 0.04437 0.05064\u00a0 0.03954\u00a0 0.00640\n1978\u00a0\u00a0\u00a0 0.061\u00a0\u00a0 -0.010\u00a0 0.07335 0.06556 0.06284 0.06267\u00a0 0.00480\u00a0 0.00824\n1979\u00a0\u00a0\u00a0 0.058\u00a0\u00a0 -0.003\u00a0 0.06738 0.05335 0.07603 0.07203\u00a0 0.03933\u00a0 0.00048\n1980\u00a0\u00a0\u00a0 0.071\u00a0\u00a0\u00a0 0.013\u00a0 0.04567 0.05153 0.03535 0.03896\u00a0 0.02264 -0.00144\n1981\u00a0\u00a0\u00a0 0.076\u00a0\u00a0\u00a0 0.005\u00a0 0.02847 0.02628 0.02723 0.02945\u00a0 0.02263\u00a0 0.00144\n1982\u00a0\u00a0\u00a0 0.097\u00a0\u00a0\u00a0 0.021\u00a0 0.02531 0.01882 0.05331 0.05432\u00a0 0.01431\u00a0 0.00571\n1983\u00a0\u00a0\u00a0 0.096\u00a0\u00a0 -0.001\u00a0 0.05539 0.06441 0.06645 0.07673\u00a0 0.05374\u00a0 0.00047\n1984\u00a0\u00a0\u00a0 0.075\u00a0\u00a0 -0.021\u00a0 0.07858 0.07981 0.03092 0.03628\u00a0 0.05667\u00a0 0.00094\n1985\u00a0\u00a0\u00a0 0.072\u00a0\u00a0 -0.003\u00a0 0.05323 0.05316 0.09000 0.08601\u00a0 0.03694\u00a0 0.00516\n1986\u00a0\u00a0\u00a0 0.070\u00a0\u00a0 -0.002\u00a0 0.06091 0.06990 0.06311 0.06574\u00a0 0.01448\u00a0 0.01421\n1987\u00a0\u00a0\u00a0 0.062\u00a0\u00a0 -0.008\u00a0 0.05155 0.05023 0.08302 0.09988\u00a0 0.03882\u00a0 0.00135\n\nRegress chlnW(n) = b(0) + b(1) trend + b(2) ChUnemp + e\n\nb(2)-hat recovers resutlts for Tab II col 4 using chlnW(1) and\u00a0\nTable II col 6 using chlnW(3).\u00a0 These series (de-meaned) are graphed\u00a0\nbelow.\u00a0 The graph at the top of the page displays the series chlnW(5).\n\n\n\n<\/pre><center><img decoding=\"async\" src=\"http:\/\/japarker.scripts.mit.edu\/docs\/rwbcw.gif\" \/><br \/><img decoding=\"async\" src=\"http:\/\/japarker.scripts.mit.edu\/docs\/rwbcm.gif\" \/><\/center><\/div><\/div><\/div><\/div><\/div>","protected":false},"excerpt":{"rendered":"<p>Measuring the Cyclicality of Real Wages: How Important is the Composition Bias?&#8221;Measuring the Cyclicality of Real Wages: How Important is the Composition Bias?&#8221;\u00a0with Gary Solon and Robert Barsky\u00a0Quarterly Journal of Economics, Vol 109 No 1, (February 1994), 1-25.\u00a0AbstractIn the period since the 1960s, as in other periods, aggregate time series on real wages have displayed [&hellip;]<\/p>\n","protected":false},"author":38,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"template-two-column.php","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"class_list":["post-634","page","type-page","status-publish","hentry"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v24.0 (Yoast SEO v25.8) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Summary: Measuring the Cyclicality of Real Wages: How Important is the Composition Bias? 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