Wage Flexibility and Employment Fluctuations: Evidence from the Housing Sector

Wage Flexibility and Employment Fluctuations: Evidence from the Housing Sector Many economists suspect that downward nominal wage rigidities in ongoing labour contracts are an important source of employment fluctuations over the business cycle, but there is little direct empirical evidence on this conjecture. This paper compares three occupations in the housing sector with very different wage setting institutions: real estate agents, architects and construction workers. I study the wage and employment responses of these occupations to the housing cycle, a proxy for labour demand shocks to the industry. The employment of real estate agents, whose pay is far more flexible than the other occupations, indeed reacts less to the cycle than employment in the other occupations, although specific estimates are noisy. I show that the aggregate implications of the estimates depend also on the aggregate labour demand elasticity, which captures how easily laid off workers can find employment in alternative sectors. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economica Wiley

Wage Flexibility and Employment Fluctuations: Evidence from the Housing Sector

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Publisher
Wiley
Copyright
Economica © 2018 The London School of Economics and Political Science
ISSN
0013-0427
eISSN
1468-0335
D.O.I.
10.1111/ecca.12263
Publisher site
See Article on Publisher Site

Abstract

Many economists suspect that downward nominal wage rigidities in ongoing labour contracts are an important source of employment fluctuations over the business cycle, but there is little direct empirical evidence on this conjecture. This paper compares three occupations in the housing sector with very different wage setting institutions: real estate agents, architects and construction workers. I study the wage and employment responses of these occupations to the housing cycle, a proxy for labour demand shocks to the industry. The employment of real estate agents, whose pay is far more flexible than the other occupations, indeed reacts less to the cycle than employment in the other occupations, although specific estimates are noisy. I show that the aggregate implications of the estimates depend also on the aggregate labour demand elasticity, which captures how easily laid off workers can find employment in alternative sectors.

Journal

EconomicaWiley

Published: Jan 1, 2018

References

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