The NAIRU and the Extent of the Low-Pay Sector
AbstractThe 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.
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Bibliographic InfoPaper provided by IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute in its series IMK Working Paper with number 12-2010.
Length: 34 pages
Date of creation: 2010
Date of revision:
NAIRU; low-wage; Kalman filter; error correction; cointegration;
Find related papers by JEL classification:
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull 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
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-16 (All new papers)
- NEP-CBA-2010-10-16 (Central Banking)
- NEP-DGE-2010-10-16 (Dynamic General Equilibrium)
- NEP-MAC-2010-10-16 (Macroeconomics)
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- 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, vol. 30(1), pages 163-180.
- Marcel Garz & Artur Tarassow, . "Does an expanding low-pay sector decrease structural unemployment? Evidence from Germany," Macroeconomics and Finance Series, Hamburg University, Department Wirtschaft und Politik 201104, Hamburg University, Department Wirtschaft und Politik.
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