Ana Figueiredo, Erasmus School of Economics

"The False Illusion of Wage Cyclicality"


We provide evidence that sorting dynamics create a false illusion of wage cyclicality. To separate wage flexibility from movements in match quality, we use administrative data from Portugal that allows to accurately distinguish between new hires and incumbent workers that switch occupation versus those that remain in the same occupation. If match quality is tied to a worker’s occupation, we are better able to isolate true wage flexibility by focusing on the latter. We find that the procyclical behaviour of wages is driven by occupation switchers. In contrast, among occupation non-switchers, wages show little cyclical variation for both incumbent workers and new hires.

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Contact person: Antoine Bertheau