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  5. How Cyclical Is the User Cost of Labor?

Journal of Economic Perspectives

ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)

How Cyclical Is the User Cost of Labor?

  • Marianna Kudlyak
Journal of Economic Perspectives
vol. 38, no. 2, Spring 2024
(pp. 159–80)
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Abstract

In employment relationships, a wage is an installment payment on an implicit long-term agreement between a worker and a firm. The price of labor that impacts firm's hiring decisions, instead, reflects the hiring wage as well as the impact of economic conditions at the time of hiring on future wages. Measured by the labor's user cost, the price of labor is substantially more pro-cyclical than the new-hire wage or the average wage. The strong procyclicality of the price of labor calls for other forces for cyclical labor demand to explain employment fluctuations.

Citation

Kudlyak, Marianna. 2024. "How Cyclical Is the User Cost of Labor?" Journal of Economic Perspectives, 38 (2): 159–80. DOI: 10.1257/jep.38.2.159

Additional Materials

JEL Classification

  • E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
  • E32 Business Fluctuations; Cycles
  • J22 Time Allocation and Labor Supply
  • J23 Labor Demand
  • J31 Wage Level and Structure; Wage Differentials
  • M51 Personnel Economics: Firm Employment Decisions; Promotions
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