Real Wages and Hours in the Great Recession: Evidence from Firms and Their Entry-Level Jobs

Abstract

Using employer-employee panel data, we provide a novel set of facts on how real wages and working hours within jobs respond to the business cycle. In contrast to previous studies, our data enable us to address the cyclical composition of jobs. We show that UK firms were able to respond to the Great Recession with substantial real wage cuts and by recruiting more part-time workers. A one percentage point increase in the unemployment rate led to an average decline in real hourly wages of 2.8 per cent for new hires and 2.6 per cent for job stayers. Hours in entry-level jobs of new hires were also substantially procyclical, while hours of job stayers were nearly constant. We conclude that there is little evidence of real wage rigidity in the UK, and that the labour costs of new hires are especially flexible for jobs and firms.