Wage rigidity has become a leading hypothesis in macroeconomic models to rationalize business cycle dynamics observed in the data. However, the finding that wages of job-switchers are more cyclical than that of job-stayers has been cited as evidence of a limited role for wage rigidity. In this paper, we use a longitudinal matched employer-employee dataset for Portugal over the 1986-2019 period to revisit the issue of wage cyclicality. Taking advantage of a particular feature of the data that allows us to account for occupational mobility within and across firms, we provide evidence that the flexibility of new hire wages is similar to that of job-stayers.
(joint work with Ines Black, Duke University)