TY  - JOUR
AU  - Martins,Pedro S.
AU  - Solon,Gary
AU  - Thomas,Jonathan
TI  - Measuring What Employers Really Do about Entry Wages over the Business Cycle
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15767
PY  - 2010
Y2  - February 2010
UR  - http://www.nber.org/papers/w15767
L1  - http://www.nber.org/papers/w15767.pdf
N1  - Author contact info:
Pedro S. Martins
School of Business and Management
Queen Mary, University of London
London  E1 4NS
UK
E-Mail: p.martins@qmul.ac.uk

Gary Solon
Department of Economics
Michigan State University
East Lansing, MI 48824-1038
Tel: 517/353-9933
Fax: 517/432-1068
E-Mail: solon@msu.edu

Jonathan Thomas
School of Economics
University of Edinburgh
Edinburgh  EH8 9JY
UK 
E-Mail: Jonathan.Thomas@ed.ac.uk
AB  - In models recently published by several influential macroeconomic theorists, rigidity in the real wages that firms pay newly hired workers plays a crucial role in generating realistically large cyclical fluctuations in unemployment.  There is remarkably little evidence, however, on whether employers’ hiring wages really are invariant to business cycle conditions.  We review the small empirical literature and show that the methods used thus far are poorly suited for identifying employers’ wage practices.  We propose a simpler and more relevant approach – use matched employer/employee longitudinal data to identify entry jobs and then directly track the cyclical variation in the real wages paid to workers newly hired into those jobs.  We illustrate the methodology by applying it to data from an annual census of employers in Portugal over the period 1982-2007.  We find that real entry wages in Portugal over this period tend to be about 1.8 percent higher when the unemployment rate is one percentage point lower.  Like most recent evidence on other aspects of wage cyclicality, our results suggest that the cyclical elasticity of wages is similar to that of employment
ER  -