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Manufacturing Earnings and Cycles: New Evidence

By Jim Malley, Robert A Hart and Ulrich Woitek

Abstract

In the time domain, the observed cyclical behavior of the real wage hides a range of economic in uences that give rise to cycles of di ering 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 signicant 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.

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