Spot Wages over the Business Cycle?∗

We consider a model with on-the-job search where current wages depend only on cur-rent aggregate labor market conditions and match-specific idiosyncratic productivities. We nevertheless show that the model replicates findings which have been interpreted as evidence against a spot wage model. Past aggregate labor market conditions such as the unemployment rate at the start of the job, the lowest unemployment rate since the start of a job, or the number of outside job offers received since the start of the job have explanatory power for current wages since these variables are correlated with procyclical match qualities. The business-cycle volatility of wages is higher for newly hired workers than for job stayers since workers can sample from a larger pool of job offers in a boom than in a recession. Using NLSY and PSID data, we find that the existing evidence against a spot wage model is rejected once we control for match-specific productivity a