Cyclical Labor Costs within Jobs

Using UK employer-employee panel data, we present novel facts on how wages and working hours respond to the business cycle within jobs. Firms reacted to the Great Recession with substantial real wage cuts and by recruiting more part-time workers. A one percentage point increase in the unemployment rate led to an average decline in real hourly wages of 2.8 percent for new hires and 2.6 percent for job stayers. Hiring hours worked were substantially procyclical, while job-stayer hours were acyclical. These results show that real wages are not rigid and that the labor costs of new hires are especially flexible