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A Dynamic Spatial Panel Data Approach to the German Wave Curve

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Abstract

A wave curve is a decreasing function of wages on the regional unemployment rate. Most empirical studies on the wave curve ignore possible spatial interaction effects between the regions which are the primary units of research. This paper reconsiders the western German wage curve with a special focus on the geography of labour markets. Spillovers between regions are taken into account. The paper tests whether the unemployment rate in the larger surrounding region also affects wages. In addition, agglomeration effects and effects of local monopsony are assessed. The main data base is a random sample of 974,179 employees observed over the period 1980-2004 and covering 326 NUTS3 units (districts). This rich data set is used to estimate a dynamic wage curve according to the two-step approach of Bell et al. (2002). In the first step one controls for individual heterogeneity and in the second step one allows for spatial effects of unemployment across regions on wages. We check the sensitivity of this wage elasticity to various spatial weight matrices as well as allowing for the endogeneity of unemployment. We also estimate the wage elasticity for various population groups.

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Bibliographic Info

Paper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 126.

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Length: 20 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:max:cprwps:126

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Keywords: Seemingly unrelated regressions; panel data; spatial dependence; heterogeneity; forecasting.;

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Cited by:
  1. Ulrich Zierahn, 2012. "Monocentric Cities, Endogenous Agglomeration, and Unemployment Disparities," MAGKS Papers on Economics 201238, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  2. Victor Montuenga & Inmaculada Garcia, 2011. "The wage dynamics in Spain: evidence from individual data," ERSA conference papers ersa11p585, European Regional Science Association.

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