Revisiting the Relationship Between Unemployment and Wages

We investigate the empirical relationship between wages and labor market conditions.

With
Joao Galindo da Fonseca and Yaniv Yedid-Levi

Abstract
We investigate the empirical relationship between wages and labor market conditions. Following work histories in the NLSY79 we document that the relationship between wages and unemployment rate differs across occupations. The results hold after controlling for unobserved match quality. This suggests that evidence about history-dependence of wages obtained from pooled samples conceals significant differences and provides an imprecise description of earning dynamics. We examine these discrepancies and offer new evidence suggesting that the sensitivity of wages to current unemployment is linked to the prevalence of performance pay.

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