The Changes in the Cyclical Variability of Wages : Reexamining the Role of Social Wages

Abstract

This paper critically reexamines a hypothesis that the increase in social wages was in part responsible for the decline in the cyclical variability of wages. In terms of both theoretical rationale and empirical evidence, we find that the hypothesis is fragile. We propose an alternative hypothesis that if social wages move in a strongly counter-cyclical fashion, then the cyclical variability of wages appears to decline without an overall increase in social wages. We find that some empirical results are consistent with our hypothesis.