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New Evidence on the Dynamic Wage Curve for Western Germany: 1980–2004

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Author Info
Baltagi, Badi H. () (Syracuse University)
Blien, Uwe () (IAB, Nürnberg)
Wolf, Katja () (IAB, Nürnberg)

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Abstract

In 1994, Blanchflower and Oswald reported that they have found an ‘empirical law of economics’ – the Wage Curve. According to their empirical results, the elasticity of wages with respect to regional unemployment is -0.1. This holds especially for the Anglo-Saxon countries. Our paper reconsiders the western German Wage Curve using disaggregated regional data and is based on a random sample of 974,179 employees drawn from the employment statistics of the Federal Employment Services of Germany (Bundesagentur für Arbeit) over the period 1980-2004. We find that the wage equation is highly autoregressive but far from unit root. This means that this wage equation is not a pure Phillips curve, nor a static Wage Curve, and one should account for wage dynamics. The unemployment elasticity is significant but relatively small: only between -0.02 and -0.04. We also check the sensitivity of this wage elasticity for different population groups (young versus old, men versus women, less educated versus highly educated, German native versus foreigner). We confirm that the wage elasticity is more flexible the weaker the bargaining power of the particular group.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3433.

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Length: 16 pages
Date of creation: Apr 2008
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Handle: RePEc:iza:izadps:dp3433

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Related research
Keywords: wage curve; regional labour markets; Phillips curve;

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Find related papers by JEL classification:
J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
R10 - Urban, Rural, and Regional Economics - - General Regional Economics - - - General

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References listed on IDEAS
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  1. Thiess Buettner, 1999. "The effect of unemployment, aggregate wages, and spatial contiguity on local wages: An investigation with German district level data," Papers in Regional Science, Springer, vol. 78(1), pages 47-67. [Downloadable!] (restricted)
  2. David Card, 1995. "The Wage Curve: A Review," Working Papers 722, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
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  3. David G. Blanchflower & Andrew J. Oswald, 2005. "The Wage Curve Reloaded," NBER Working Papers 11338, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Lutz Bellmann & Uwe Blien, 2001. "Wage curve analyses of establishment data from western Germany," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 54(4), pages 851-863, July.
  5. David G. Blanchflower & Andrew J. Oswald, 1990. "The Wage Curve," NBER Working Papers 3181, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November. [Downloadable!] (restricted)
  7. Ammermueller, Andreas & Lucifora, Claudio & Origo, Federica & Zwick, Thomas, 2007. "Still searching for the wage curve : evidence from Germany and Italy," ZEW Discussion Papers 07-008, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
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  8. Blanchflower, David G & Oswald, Andrew J, 1995. "An Introduction to the Wage Curve," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 153-67, Summer. [Downloadable!] (restricted)
  9. Peter Nijkamp & Jacques Poot, 2005. "The Last Word on the Wage Curve?," Journal of Economic Surveys, Blackwell Publishing, vol. 19(3), pages 421-450, 07. [Downloadable!] (restricted)
    Other versions:
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