Business cycles, real wages, and the quality of jobs

Abstract

ABSTRACT The primary goal of this study is to shed light on the ongoing debate regarding a supposed extra wage sensitivity for newly hired workers compared to those who remain employed. Recent contributions claim that this apparent greater wage sensitivity may be driven by the correlation between the business cycle and likelihood of workers transitioning to ‘better’ job opportunities, typically associated with higher salaries. Our findings based on Brazilian data align with this claim. In other words, during periods of economic expansion, the availability of ‘better’ job positions increases, leading to a higher influx of newly hired individuals who experience wage increases because of transitioning away from ‘worse’ job positions into better jobs. To assess this, we used two metrics for ranking jobs: The first was based on grouping occupations according to hierarchy levels, with managers and directors occupying the top tier. The other considered formal jobs as better than informal jobs. Importantly, our findings remain robust regardless of how the jobs are ranked.