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Pastimes : Austrian Economics, a lens on everyday reality

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To: Don Lloyd who wrote (229)	5/11/2003 6:56:38 PM
From: gpowell	Read Replies (1) of 445

Don, The quoted paragraph is not in accordance with your previous expectations - you were making a case for a wage and performance ranking system within the same job class. Delong is saying average wages appear countercyclical because below average jobs are disproportionately lost. The very next paragraph states: Correcting for this "composition of employment" effect, the balance of the evidence is that in the average business cycle real wages are slightly procyclical: a particular job with particular skill requirements tends to carry higher real wages in a boom than in a recession (see Barsky and Solon, 1993). Real wages are high in booms because demand for investment goods is high in booms--and thus the derived demand for labor is high in booms as well. A procyclical wage seems to invalidate your pay for rank system.

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