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The Wage Curve Reloaded

Author

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  • Blanchflower, David G.

    (Dartmouth College)

  • Oswald, Andrew J.

    (University of Warwick)

Abstract

This paper provides evidence for the existence of a wage curve – a micro-econometric association between the level of pay and the local unemployment rate – in modern U.S. data. Consistent with recent evidence from more than 40 other countries, the wage curve in the United States has a long-run elasticity of approximately -0.1. In line with the paper's theoretical framework: (i) wages are higher in states with more generous unemployment benefits, (ii) the perceived probability of job-finding is lower in states with higher unemployment, and (iii) employees are less happy in states that have higher unemployment. We conclude that it is reasonable to view the wage curve as an empirical law of economics.

Suggested Citation

  • Blanchflower, David G. & Oswald, Andrew J., 2005. "The Wage Curve Reloaded," IZA Discussion Papers 1665, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp1665
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    Keywords

    wages; unemployment; wage curves;
    All these keywords.

    JEL classification:

    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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