Unemployment, Labor Market Transitions, And Residual Wage Dispersion
AbstractIt is commonplace in the debate on Germany's labor market problems to argue hat high unemployment and low wage dispersion are related. This paper analyses the relationship between unemployment and residual wage dispersion for individuals with comparable attributes. In the conventional neoclassical point of view, wages are determined by the marginal product of the workers. Accordingly, increases in union minimum wages result in a decline of residual wage dispersion and higher unemployment. A competing view regards wage dispersion as the outcome of search frictions and the associated monopsony power of the firms. Accordingly, an increase in search frictions causes both higher unemployment and higher wage dispersion. The empirical analysis attempts to discriminate between the two hypotheses for West Germany analysing the relationship between wage dispersion and both the level of unemployment as well as the transition rates between different labor market states. The findings are not completely consistent with either theory. However, as predicted by search theory, one robust result is that unemployment by cells is not negatively correlated with the within-cell wage dispersion.
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Bibliographic InfoArticle provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.
Volume (Year): 55 (2008)
Issue (Month): 5 (November)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0036-9292
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Other versions of this item:
- Fitzenberger, Bernd & Garloff, Alfred, 2005. "Unemployment, Labor Market Transitions, and Residual Wage Dispersion," ZEW Discussion Papers 05-04, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Bernd Fitzenberger & Alfred Garloff, 2005. "Unemployment, Labor Market Transitions, and Residual Wage Dispersion," Working Papers of the Research Group Heterogenous Labor 05-02, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
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