Regional and Industrial Wage Dynamics in West Germany and the United States
It is commonly known that every economy is faced with the problem of unevenly distributed labour demand changes across industries, occupations and regions. In competitive labour markets flexible wages and the mobility of labour would lead to a new equilibrium distribution of wages and employment. Regional or industrial unemployment dispersion in Germany is often blamed on a lack of wage adjustments and the lack of labour mobility when economic fortunes are not distributed evenly, but this hypothesis is hardly ever tested. This paper asks how wage reactions in Germany compare with responses in the United States using individual level data. As a first step labour demand shocks are estimated from employment time series data using deterministic detrending and the Hodrick-Prescott filter. These are then included in typical wage regressions based on micro data. The results propose that German labour markets are not as inflexible as simple evidence might suggest. Although wages are regionally only flexible in the United States, wages are found to react to industrial labour demand shocks in both countries. Especially for more experienced and therefore less mobile groups in the German labour market wages react to industrial labour demand shocks.
Volume (Year): 222 (2002)
Issue (Month): 5 ()
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