Economic Quarterly

2003

 

Winter 2003

The Cyclical Behavior of Prices and Employee Compensation

Roy H. Webb

Recent empirical analysis has challenged the common belief that prices are procyclical. Here the analysis is augmented with data on average movements by phase of business cycles. While the data can be interpreted to be consistent with countercyclical prices, the data are also consistent with the interpretation that finished goods prices react more slowly than output to cyclical disturbances. Similarly, examination of the behavior of employee compensation reveals that nominal compensation behaves much like finished goods prices, and there is weak evidence that real compensation is procyclical.

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