Small Employers, Large Employers and the Skill Premium over the Business Cycle
14 Pages Posted: 25 Jul 2015 Last revised: 15 Nov 2018
Date Written: November 14, 2018
For the USA in 1987–2017, I document, at business cycle frequencies, that the employer-size wage premium of high-skill workers tends to be high (low) in times of low (high) unemployment relative to that of low-skill workers. The differential size wage premium between high-skill and low-skill workers has an unconditional correlation of –0.6 with the aggregate unemployment rate in 1987–2007. An above-trend increase in the unemployment rate by one percentage point is associated with a decrease in the differential size wage premium by around 1.8–2.3 percentage points. Nevertheless, the skill wage premium is not negatively correlated with aggregate unemployment consistently.
Keywords: employer-size wage premium, skill premium, economic fluctuations, business cycles, Current Population Survey
JEL Classification: D22, E32, J31, I26
Suggested Citation: Suggested Citation