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A Cointegration Model for Search Equilibrium Wage Formation

Author

Listed:
  • L. Broersma

    () (Department of Economics and Department of Spatial Science, University of Groningen)

  • Frank A.G. den Butter

    () (Department of Economics, Vrije Universiteit Amsterdam)

  • Udo Kock

    () (International Monetary Fund, Washington)

Abstract

This discussion paper resulted in a publication in the Journal of Applied Economics , 9, 235-54. In flow models of the labor market, wages are determined by negotiations between workers and employers on the surplus value of a realized match. From this perspective our study presents an econometric analysis of the influence of labor market flows on wage formation as alternative to the traditional specification of wage equations where unemployment represents the Phillips-curve or wage curve-effects. We estimate a dynamic wage equation for the Netherlands using a cointegration approach. We find that labor flows, and notably flows from outside the labor market, are important determinants for both short run and long run wage setting

Suggested Citation

  • L. Broersma & Frank A.G. den Butter & Udo Kock, 2003. "A Cointegration Model for Search Equilibrium Wage Formation," Tinbergen Institute Discussion Papers 03-088/3, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20030088
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    References listed on IDEAS

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    1. Paul Frijters & Bas van der Klaauw, 2006. "Job Search with Nonparticipation," Economic Journal, Royal Economic Society, vol. 116(508), pages 45-83, January.
    2. Mortensen, Dale & Pissarides, Christopher, 2011. "Job Creation and Job Destruction in the Theory of Unemployment," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 1-19.
    3. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, January.
    4. van den Berg, Gerard J, 1999. "Empirical Inference with Equilibrium Search Models of the Labour Market," Economic Journal, Royal Economic Society, vol. 109(456), pages 283-306, June.
    5. Dale T. Mortensen, 1982. "The Matching Process as a Noncooperative Bargaining Game," NBER Chapters,in: The Economics of Information and Uncertainty, pages 233-258 National Bureau of Economic Research, Inc.
    6. Lars Ljungqvist & Thomas J. Sargent, 1998. "The European Unemployment Dilemma," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 514-550, June.
    7. Lourens Broersma & Frank A. G . Den Butter, 2001. "Labour Flows as Determinants of the Wage-Price Spiral: An Empirical Analysis for The Netherlands," LABOUR, CEIS, vol. 15(2), pages 279-294, June.
    8. Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
    9. Gerard J. van den Berg & Geert Ridder, 1998. "An Empirical Equilibrium Search Model of the Labor Market," Econometrica, Econometric Society, vol. 66(5), pages 1183-1222, September.
    10. Blanchard, Olivier Jean & Diamond, Peter, 1992. "The Flow Approach to Labor Markets," American Economic Review, American Economic Association, vol. 82(2), pages 354-359, May.
    11. Graafland, J.J., 1991. "From Phillips curve to wage curve," MPRA Paper 21077, University Library of Munich, Germany.
    12. Peter A. Diamond, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 217-227.
    13. Andrew Brigden & Jonathan Thomas, 2003. "A matching model of non-employment and wage pressure," Bank of England working papers 208, Bank of England.
    14. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    15. Knoester, Anthonie & van der Windt, Nico, 1987. "Real Wages and Taxation in Ten OECD Countries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(1), pages 151-169, February.
    16. Broersma, Lourens & den Butter, Frank A. G. & Kock, Udo, 2000. "A national accounting system for worker flows," Economics Letters, Elsevier, vol. 67(3), pages 331-336, June.
    17. Eran Yashiv, 2000. "The Determinants of Equilibrium Unemployment," American Economic Review, American Economic Association, vol. 90(5), pages 1297-1322, December.
    18. Edmund S. Phelps, 1968. "Money-Wage Dynamics and Labor-Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 76, pages 678-678.
    19. Lourens Broersma & Frank A. G. Den Butter, 2002. "An explorative empirical analysis of the influence of labour flows on wage formation," Applied Economics, Taylor & Francis Journals, vol. 34(13), pages 1583-1592.
    20. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-595, September.
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    Citations

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    Cited by:

    1. Katarzyna Budnik, 2012. "Do those who stay work less? On the impact of emigration on the measured TFP in Poland," NBP Working Papers 113, Narodowy Bank Polski, Economic Research Department.
    2. Kees Folmer, 2009. "Why do macro wage elasticities diverge? A meta analysis," CPB Discussion Paper 122, CPB Netherlands Bureau for Economic Policy Analysis.

    More about this item

    Keywords

    Wage curve; Labour market flows; Cointegration model;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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