Job Change and Earnings Growth

Paper Session

Saturday, Jan. 7, 2017 2:30 PM – 4:30 PM

Hyatt Regency Chicago, Acapulco
Hosted By: American Economic Association
  • Chair: Rasmus Lentz, University of Wisconsin-Madison

Composition, Selection, and Aggregate Real Wage Growth

Mary Daly
,
Federal Reserve Bank of San Francisco
Bart Hobijn
,
Arizona State University

Abstract

The business cycle dynamics of real wage growth remain a macroeconomic puzzle; specifically, aggregate real wages exhibit less procyclicality than most models predict. In this paper we use 35 years of Current Population Survey data to confirm that the puzzling behavior of wages largely owes to changes in the composition of the employed over the business cycle. The cyclicality of the composition effect relates to changes in both the number and the relative wage levels of those entering and exiting. The changing gap in wages of entrants and exiters is especially important for the unemployed. A large part of this wage gap turns out to reflect selection of entrants and exiters with respect to their Mincer residuals.

Do Job-to-Job Transitions Drive Wage Fluctuations Over the Business Cycle?

Fatih Karahan
,
Federal Reserve Bank of New York
Ryan Michaels
,
Federal Reserve Bank of Philadelphia
Benjamin Pugsley
,
Federal Reserve Bank of New York
Aysegul Sahin
,
Federal Reserve Bank of New York

Abstract

The Phillips curve, which links infation and unemployment, has in its various forms guided monetary policy for more than fifty years. However, recent U.S. experience with low levels of unemployment and inflation has led many economists to question whether the Phillips curve is still relevant, see Gordon (2015) and Blanchard (2016). Reacting to this, we reconsider, and explore empirically, mechanisms underlying the interaction between labor market slack and wage setting. Specifically, this paper pursues an idea, also put forth in Faberman and Justiniano (2015) and Moscarini and Postel-Vinay (2016), that aggregate wage growth springs from heightened competition for workers and the latter is best summarized by job-to-job transitions – moves from one job to another one without an intervening spell of unemployment. A corollary of this is that the unemployment rate influences wage growth only to the extent that it proxies for the incidence of job-to-job transitions. We test this hypothesis using state-level variation based on data from the Quarterly Workforce Indicators (QWI), which provide a set of economic indicators including earnings of new hires by detailed firm and worker characteristics. We find large and significant effects on earnings growth from job-to-job transitions and no independent effect of the unemployment rate beyond what can be predicted by job-to-job transitions. Importantly, we also find no evidence of a change in the responsiveness of wage growth to job-to-job transitions after the Great Recession. In light of our findings, we then consider the reasons behind the recent sluggish wage growth relative to the decline in the unemployment rate. The paper concludes that the link between job to job transitions and wage growth offers a more durable foundation for a Phillips curve.

Job-to-Job Flows and Earnings Growth

Joyce Hahn
,
U.S. Census Bureau
Henry R. Hyatt
,
U.S. Census Bureau
Hubert Janicki
,
U.S. Census Bureau
Stephen Tibbets
,
U.S. Census Bureau

Abstract

In the U.S. in the late 1990s, there was a sudden, long-lasting upward shift in real wage and salary compensation per worker in the U.S. labor market, and little growth in the following decade and a half. In this paper, we provide a compositional analysis that distinguishes between three channels for earnings growth: job stayers, workers undergoing job-to-job flows, and workers transitioning between employment and nonemployment. To do so, we use a unique dataset of matched employer-employee data that permits the measurement of earnings changes for different employment types. We find modest cyclical earnings changes for job stayers, job switchers, and net nonemployment. There also was a large increase in the earnings of long-tenure job stayers during the late 1990s. Our data permit measurement of whether these changes come from hours or wages. We find that job-to-job flows have a strong role to play in increases in hours worked. Stayer earnings growth dominates growth in hourly wages. We also find that earnings and wage growth of those with short job tenure is less cyclical than longer-tenure job stayers.

The Relative Power of Employment-to-Employment Reallocation and Unemployment Exits in Predicting Wage Growth

Giuseppe Moscarini
,
Yale University
Fabien Postel-Vinay
,
University College London

Abstract

It has recently been pointed out (Faberman and Justiniano, 2015; Moscarini and Postel-Vinay, 2016) that measures of real and nominal wage growth are strongly correlated over the business cycle with the aggregate employment-to-employment (EE) transitions. This tallies with the predictions of a large class of frictional models of labor market competition, which further predict that (1) wages are primarily responsive to the job contact rate of employed workers, rather than to the unemployment exit rate, and (2) that the wages of job stayers and job switchers are affected differently (albeit positively in both cases) by an intensification of EE reallocation. In this paper, we put those predictions under scrutiny using worker-level panel data from the Survey of Income and Program Participation (SIPP). Our evidence indicates that the EE job switching rate is a strong predictor of future wage growth even for job stayers, hence, ultimately, of inflation.
Discussant(s)
Andre Kurmann
,
Drexel University
John M. Abowd
,
U.S. Census Bureau and Cornell University
Bruce Fallick
,
Federal Reserve Bank of Cleveland
John C. Haltiwanger
,
University of Maryland
JEL Classifications
  • C8 - Data Collection and Data Estimation Methodology; Computer Programs
  • J3 - Wages, Compensation, and Labor Costs