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Structural wage rigidity in West Germany 1950 - 1989: Some new econometric evidence

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  • Paqué, Karl-Heinz
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    Abstract

    Is the wage structure too rigid? Since the mid-1970s, this question has been one of the most persistent themes of the economic policy debate in West Germany. In recent months, the question is asked with a new sense of urgency: after the political and economic unification of the country in 1990, a huge imbalance between the labour markets in the West and the post-communist East will be a fact of life for years to come so that common sense and economics speak in favour of a sustained interregional wage differentiation. However, actual wage agreements, which mostly envisage an equalization of wages between West and East by the mid-1990s, do not take this need for flexibility into account. In this paper, we shall take a fresh look at the empirical evidence on structural wage rigidity for the last four decades of economic history in West Germany. We shall do so by applying some more recently developed techniques of co-integration, which provide a useful framework for the economectric analysis of structural labour market disequilibria and their wage effects. While the subject of our inquiry is the West German labour market since the early 1950s, the results do have implications for what one might expect for the future in a united Germany which has taken over basically all institutional features of the West's so-called social market economy, including the predominance of collective bargaining in wage determination.

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    Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 489.

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    Date of creation: 1991
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    Handle: RePEc:kie:kieliw:489

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    1. Fels, Joachim & Gundlach, Erich, 1990. "More evidence on the puzzle of interindustry wage differentials: the case of West Germany," Kiel Working Papers 400, Kiel Institute for the World Economy.
    2. Thaler, Richard H, 1989. "Interindustry Wage Differentials," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 181-93, Spring.
    3. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Technical Working Papers 0100, National Bureau of Economic Research, Inc.
    4. William T. Dickens & Lawrence F. Katz, 1987. "Inter-Industry Wage Differences and Theories of Wage Determination," NBER Working Papers 2271, National Bureau of Economic Research, Inc.
    5. Hendry, David F. & Pagan, Adrian R. & Sargan, J.Denis, 1984. "Dynamic specification," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 18, pages 1023-1100 Elsevier.
    6. Breusch, Trevor S & Wickens, Michael R, 1987. "Dynamic Specification, the Long Run and the Estimation of Transformed Regression Models," CEPR Discussion Papers 154, C.E.P.R. Discussion Papers.
    7. Lundberg, Erik, 1985. "The Rise and Fall of the Swedish Model," Journal of Economic Literature, American Economic Association, vol. 23(1), pages 1-36, March.
    8. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
    9. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    10. Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
    11. Robert J. Shiller & Pierre Perron, 1985. "Testing the Random Walk Hypothesis: Power versus Frequency of Observation," NBER Technical Working Papers 0045, National Bureau of Economic Research, Inc.
    12. Phillips, Peter C B & Ouliaris, S, 1990. "Asymptotic Properties of Residual Based Tests for Cointegration," Econometrica, Econometric Society, vol. 58(1), pages 165-93, January.
    13. Jaeger, Albert & Kunst, Robert M, 1990. "Seasonal Adjustment and Measuring Persistence in Output," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(1), pages 47-58, January-M.
    14. Cochrane, John H., 1991. "A critique of the application of unit root tests," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 275-284, April.
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