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The NAIRU and the Extent of the Low-Pay Sector

Author

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  • Marcel Garz

    (University of Hamburg)

Abstract

The creation of jobs in the low-pay sector is considered to be an approach to reduce unemployment, especially with respect to low-skilled workers. By now, the expansion of the German low-wage sector over the last 15 years is empirically confirmed, which indicates a successful implementation of corresponding recommendations from policy advisers. In order to evaluate the effects of an increasing low-wage sector on unemployment, the concept of the non-accelerating inflation rate of unemployment (NAIRU) is used. In a first step, the unobservable, exogenous NAIRU is estimated for Germany in a state space setting. In a second step, data from the German Socio-Economic Panel (SOEP) is used to calculate a time series of the extent of the low-pay sector. Finally, by treating the NAIRU as the dependent variable, the impact of the low-wage share is estimated within an error correction framework. According to the proponents of the low-pay expansion, there should be a negative relationship between the NAIRU and the share of the low-wage sector. This hypothesis is rejected empirically. Indeed, for the time after the German reunification, cointegration is found between both variables suggesting a slightly positive relationship.

Suggested Citation

  • Marcel Garz, 2010. "The NAIRU and the Extent of the Low-Pay Sector," IMK Working Paper 12-2010, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:12-2010
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    File URL: http://www.boeckler.de/pdf/p_imk_wp_12_2010.pdf
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    Citations

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    Cited by:

    1. Valerija Botric, 2012. "NAIRU estimates for Croatia," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 30(1), pages 163-180.
    2. Marcel Garz & Artur Tarassow, 2011. "Does an expanding low-pay sector decrease structural unemployment? Evidence from Germany," Macroeconomics and Finance Series 201104, University of Hamburg, Department of Socioeconomics.

    More about this item

    Keywords

    NAIRU; low-wage; Kalman filter; error correction; cointegration;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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