Working Papers

2016-04 | March 2016

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The Intensive and Extensive Margins of Real Wage Adjustment

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Using 35 years of data from the Current Population Survey we decompose fluctuations in real median weekly earnings growth into the part driven by movements in the intensive margin-wage growth of individuals continuously full-time employed-and movements in the extensive margin-wage differences of those moving into and out of full-time employment. The relative importance of these two margins varies significantly over the business cycle. When labor markets are tight, continuously full-time employed workers drive wage growth. During labor market downturns, the procyclicality of the intensive margin is largely offset by net exits out of full-time employment among workers with lower earnings. This leads aggregate real wages to be largely acyclical. Most of the extensive margin effect works through the part-time employment margin. Notably, the unemployment margin accounts for little of the variation or cyclicality of median weekly earnings growth.

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Article Citation

Daly, Mary C, and Bart Hobijn. 2016. "The Intensive and Extensive Margins of Real Wage Adjustment," Federal Reserve Bank of San Francisco Working Paper 2016-04. Available at https://doi.org/10.24148/wp2016-04