DISCUSSION PAPER SERIES The Quality-Adjusted Cyclical Price of Labor

Moreover, we generalize the specification in equation (4) to allow for the possibility that the flow of match rents to the firm grow with its duration.9 2.3 Identifying match quality by its expected long-run wage The wage component of labor’s user cost can be broken into the new-hire wage plus any differential in the wage path for hires at t versus t + 1. [...] Cyclicality of the new-hire wage is captured by the covariance+ of the cycle with the first term, ! a!=1 $ lnwt,t+! , with cyclicality of the future wage path captured by the balance. [...] The estimate now captures the response of the real wage relative to its match average to a 1 pp increase in unemployment relative to the average over the match. [...] The second is that the state of the cycle does not predict the quality-adjusted wage in the match eight years ahead. [...] Table 3, Column 2 presents the results from regressing annualized growth in the occu- pational wage index on the unemployment rate at the start of the match, the concurrent change in the unemployment rate, and a cubic trend.