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How Does High Unemployment Affect Wages of Those Who Remain Employed?

(Brand X Pictures)

Of course higher unemployment generally raises jobless rates for everyone: men, women and minorities. But how does it affect the wages of workers who keep their jobs? I believe a new paper that I coauthored with Jeff Biddle is the first to use large amounts of data to address this question about cycles in wage discrimination.
Here’s the abstract:

Using CPS data from 1979-2009 we examine how cyclical downturns and industry-specific demand shocks affect wage differentials between white non-Hispanic males and women, Hispanics and African- Americans. Women’s and Hispanics’ relative earnings are harmed by negative shocks, while the earnings disadvantage of African-Americans may drop with negative shocks. Negative shocks also appear to increase the earnings disadvantage of bad-looking workers. A theory of job search suggests two opposite-signed mechanisms that affect these wage differentials. It suggests greater absolute effects among job-movers, which is verified using the longitudinal component of the CPS.

Even though women’s unemployment rises less than men’s in most recessions (4.4 vs. 6.5 percentage points in this recession), employed women’s wages fall relative to men’s in bad times; same for Hispanics. But although African-Americans’ unemployment rises more than whites’ (8.3 vs. 4.8 percentage points in this recession), the wages of employed African-Americans rise slightly more than whites’ wages in bad times. So maybe things even out a little bit—and ethnic/racial/gender differences over the cycle are not so severe as looking only at unemployment changes would suggest.