The Cyclicality of Effective Wages withinEmployer-Employee Matches in a Rigid Labor Market

This study analyzes real wage cyclicality for male full-time workers within employer-employeematches in Germany over the period 1984-2004. Five different wage measures arecompared: the standard hourly wage rate; hourly wage earnings including overtime andbonus pay; the effective wage, which takes into account unpaid overtime; and monthlyearnings, with and without additional pay. None of the hourly wage measures exhibitscyclicality except for the group of salaried workers with unpaid overtime. Their effectivewages show a strongly procyclical reaction to changes in unemployment. Despite acyclicalwage rates, salaried workers without unpaid overtime experienced procyclical earningsmovements if they had income from extra pay. Monthly earnings were also procyclical forhourly paid workers with overtime pay. These findings suggest that cyclical earningsmovements are generated by variable pay components, such as bonuses and overtime, andby flexible working hours. The degree of earnings procyclicality revealed for the Germanlabor market is comparable to the United States....