Wages and Market Potential in Germany
Using a market potential function, we examine the spatial correlation of wages and consumer purchasing power across regions in West Germany. The market potential function can be regarded as a reduced form of several new economic geography models. Thus, the estimation results provide some first evidence on the validity of these models for European regions. We find that the wage in one region is indeed positively related to purchasing power in other regions. However, this relationship only holds for skilled wokers' salaries and wages, whereas it does not for the wages of untrained workers.
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