Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Richmond
Working Paper
The cyclical price of labor when wages are smoothed
Marianna Kudlyak

I conduct an empirical investigation of the cyclicality of the price of labor. Firms employ workers up to the point where workers' marginal revenue product equals the price of labor. If the labor market is a spot market, then the price of labor is the wage. But often workers are contracted for more than one period. The price of labor captures both the wage at the time of hiring and the impact of labor market conditions at the time of hiring on future wages. The price of labor and not wage is allocational for employment. Because it is not directly observed in the data, I construct the price of labor based on the behavior of individual wages and turnover. I find that a one percentage point increase in unemployment generates more than a 4.5% decrease in the price of labor. This cyclicality is three times higher than the cyclicality of individual wages and also noticeably higher than the cyclicality of the wages of newly hired workers. I conclude that the price of labor is very procyclical.

Download Full text
Download Full text
Cite this item
Marianna Kudlyak, The cyclical price of labor when wages are smoothed, Federal Reserve Bank of Richmond, Working Paper 10-13, 2010.
More from this series
JEL Classification:
Subject headings:
Keywords: Business cycles ; Labor supply ; Unemployment ; Wages
For corrections, contact Christian Pascasio ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal