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Unemployment, Labor Market Transitions, and Residual Wage Dispersion

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  • Bernd Fitzenberger

    ()
    (Department of Economics, University of Mannheim)

  • Alfred Garloff

    ()
    (Centre for European Economic Research)

Abstract

It 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 Info

Paper provided by Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim in its series Working Papers of the Research Group Heterogenous Labor with number 05-02.

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Length: 37 pages
Date of creation: 04 Feb 2005
Date of revision:
Handle: RePEc:knz:hetero:0502

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Keywords: search friction ; labor demand ; labor market transitions ; wages;

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References

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  1. Bontemps, C. & Robin, J.M. & van den Berg, G.J., 1998. "Equilibrium Search with Continuous Productivity Dispersion: Theory and Non-Parametric Estimation," Papers 98-07, Centre for Labour Market and Social Research, Danmark-.
  2. Berg, G.J. & Ridder, G., 1993. "Estimating an equilibrium search model from wage data," Serie Research Memoranda 0040, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  3. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
  4. Max Gruetter & Rafael Lalive, . "The Importance of Firms in Wage Determination," IEW - Working Papers 207, Institute for Empirical Research in Economics - University of Zurich.
  5. Rosholm, Michael & Svarer, Michael, 2004. "Endogenous wage dispersion in a search-matching model," Labour Economics, Elsevier, vol. 11(5), pages 623-645, October.
  6. Burdett, Kenneth & Mortensen, Dale T, 1998. "Wage Differentials, Employer Size, and Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(2), pages 257-73, May.
  7. Lauer, Charlotte, 2003. "Education and Unemployment: A French-German Comparison," ZEW Discussion Papers 03-34, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Longitudinal Employer-Household Dynamics Technical Papers 2002-06, Center for Economic Studies, U.S. Census Bureau.
  9. Garloff, Alfred & Fitzenberger, Bernd & Kohn, Karsten, 2003. "Beschäftigung und Lohnstrukturen nach Qualifikationen und Altersgruppen: Eine empirische Analyse auf Basis der IAB-Beschäftigtenstichprobe," ZEW Discussion Papers 03-75, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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Cited by:
  1. Ronald Bachmann, 2005. "Labour Market Dynamics in Germany: Hirings, Separations, and Job-to-Job Transitions over the Business Cycle," SFB 649 Discussion Papers SFB649DP2005-045, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  2. Marinela, Simuţ Ramona & Lavinia, Delcea (Săutiuţ), 2012. "Challenges for Romania’s employment policy in the Real Economy," MPRA Paper 40369, University Library of Munich, Germany.
  3. Kovács Ildikó & Marton Noémi & Patka Kinga & Páll Katalin, 2010. "The Determinats Of The Unemployment Rate - Empirical Evidence From Romania," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(2), pages 277-282, December.

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