Cyclicality of Real Wages in the USA and Germany: New Insights from Wavelet Analysis

Publication Type

Working paper

Authors

Marczak, Martyna and Gómez, Víctor

Year of publication

2012

Published in

FZID Discussion Papers

Editor

FZID

Band/Volume

50/

This article provides new insights into the cyclical behavior of consumer and producer
real wages in the USA and Germany. We apply two methods for the estimation of the
cyclical components from the data: the approach based on the structural time series models
and the ARIMA–model–based approach combined with the canonical decomposition and
a band–pass filter. We examine the extracted cycles drawing on two wavelet concepts:
wavelet coherence and wavelet phase angle. In contrast to the analysis in the time or
frequency domains, wavelet analysis allows for the identification of possible changes in
cyclical patterns over time. From the findings of our study, we can infer that the USA
and Germany differ with respect to the lead–lag relationship of real wages and the business
cycle. In the USA, both real wages are leading the business cycle in the entire time interval.
The German consumer real wage is, on the other hand, lagging the business cycle. For
the German producer real wage, the lead–lag pattern changes over time. We also find
that real wages in the USA as well in Germany are procyclical or acyclical until 1980 and
countercyclical thereafter.