Stimulating Employment Growth with Higher Wages? A New Approach to Addressing an Old Controversy
We analyse the impact of wages on employment growth in West German local industries (1993-2002), addressing the tension between cost and potentially offsetting demand side effects. We construct a neutralised regional wage level that is detached from various productivity influences. A positive value implies 'overly high' labour costs, but also high local purchasing power. A subsequent employment growth regression yields significantly negative effects associated with this indicator. Cost push effects dominate, but our estimates suggest that demand side repercussions have a mitigating effect. There is considerable variation across industries, but in no case we find a positive employment reaction. Copyright 2007 Blackwell Publishing Ltd..
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Volume (Year): 60 (2007)
Issue (Month): 3 (08)
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