Macroeconomic evidence about the direction and extent of the response of real wages to business cycle fluctuations is inconclusive. We study the cyclicality of real wages using a large dataset of OECD countries for the period 1960-2004. We focus on dynamic methods and examine the cyclicality of real wage combining evidence from different methodologies and different measures of real wages and the business cycle. The dynamic methods we adopt are the time domain approach proposed by Den Haan (2000) and the frequency domain approach proposed by Croux et al. (2001). In contrast with static correlations between detrended wages and output, which have been used in the literature to measure cyclicality, these method can account for the dynamic evolution of the data series and allow us to compute measures of cyclicality at different business cycle frequencies. Our results indicate that, in spite of observed differences across measures and methods, there is genuine cross-country heterogeneity in real wage cyclicality. We then illustrate how this heterogeneity is related to both cyclicality of employment and labour market institutions. |
