This paper investigates the change in wages associated with a spell of unemployment. The novelty lies in using monthly data from the Survey of Income and Program Participation (SIPP) to analyze the dynamics of those wage changes across different business cycles. The level of education or the sector of re-employment affects the change in wages following an unemployment spell differently across different downturns. The degree of wage rigidity varies across recessions; wage changes pre- and post-unemployment are sometimes procyclical and sometimes countercyclical. These results may be useful for understanding the different aggregate employment dynamics observed across downturns and recoveries.
JEL classification: E24, J31
Key words: wage rigidity, unemployment duration, jobless recoveries
The authors thank Jing Xu for excellent research assistance, Bruce Fallick for a thoughtful discussion on an earlier draft, and Shigeru Fujita for a helpful conversation. The views expressed here are the authors' and not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors' responsibility.
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