Using thenew AWFP dataset that covers all Germanestablishments, we documenta substantial cross-sectional heterogeneity of establishments' average realwages overthe business cycle. While the medianestablishments' real wages are procyclical, there is a large fraction of establishments with countercyclical realwages. We are the first to show that establishmentswith more procyclical wages have a less procyclical hiresrate and employment behavior. We propose alabor market flow model that is able to replicate these factsandthereby allows usto run counterfactual exercises. When we set the wage cyclicalities of all establishments to the one of the most procyclical establishments, labor market volatilities drop bymore than 50 percent.
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