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Local and Spatial Cointegration in the Wage Curve: A Spatial Panel Analysis for German Regions

Author

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  • Kosfeld, Reinhold

    () (University of Kassel)

  • Dreger, Christian

    () (DIW Berlin)

Abstract

The wage curve introduced by Blanchflower and Oswald (1990, 1994) postulates a negative correlation between wages and unemployment. Empirical results focus on particular theoretical channels establishing the relationship. Panel models mostly draw on unionized bargaining or the efficiency wage hypothesis. Spatial econometric approaches can be rationalized by monopsonistic competition. However, the approaches either ignore the issue of nonstationarity or treat the data as if it were nonspatial. In this paper, we adopt a global cointegration approach recently proposed by Bienstock and Felsenstein (2010) to account for nonstationarity of regional data. By specifying a spatial error correction model (SpECM), equilibrium adjustments are considered in both space and time. Applying the methodology for West German labour markets, we find strong evidence for the existence of a long-run wage curve with spatial effects.

Suggested Citation

  • Kosfeld, Reinhold & Dreger, Christian, 2015. "Local and Spatial Cointegration in the Wage Curve: A Spatial Panel Analysis for German Regions," IZA Discussion Papers 9577, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp9577
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    Cited by:

    1. Kosfeld, Reinhold & Dreger, Christian, 2017. "Towards an East German Wage Curve: NUTS Boundaries, Labour Market Regions and Unemployment Spillovers," IZA Discussion Papers 10892, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    wage curve; regional labour markets; spatial panel models; global cointegration analysis;

    JEL classification:

    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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