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A spatial panel approach to the east German wage curve

  • Elhorst, J. Paul
  • Blien, Uwe

    ()

  • Wolf, Katja

    ()

This study presents results about wage effects of unemployment in eastern Germany. The standard approach to analyse the wage curve takes no account of the spatial relationship among regions. Ignoring this relationship may seriously bias the results. To investigate this, the East German wage curve is estimated including spatial effects using panel data classified into 114 administrative districts over the period 1993-1999. It extends the analysis of Baltagi, Blien and Wolf (2000) in which spatial effects were not taken into account. To control for the possible endogeneity of the unemployment rate, one of the explanatory variables, instrumental variable methods should be used. To control for spatial dependence, this paper adopts the use of matrix exponentials for spatially transforming the error terms. This transformation has the advantage that the Jacobian term equals zero. Two important empirical results appear. If spatial effects are not taken into account, the unemployment elasticity in Eastern Germany is larger than in Western countries. If spatial effects are added, the unemployment elasticity significantly reduces.

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File URL: http://www-sre.wu-wien.ac.at/ersa/ersaconfs/ersa02/cd-rom/papers/444.pdf
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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa02p444.

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Date of creation: Aug 2002
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Handle: RePEc:wiw:wiwrsa:ersa02p444
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  1. Moulton, Brent R, 1990. "An Illustration of a Pitfall in Estimating the Effects of Aggregate Variables on Micro Unit," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 334-38, May.
  2. David G. Blanchflower & Andrew J. Oswald, 1989. "The Wage Curve," NBER Working Papers 3181, National Bureau of Economic Research, Inc.
    • Blanchflower, D. & Oswald, A., 1989. "The Wage Curve," Papers 340, London School of Economics - Centre for Labour Economics.
  3. Anselin, Luc & Hudak, Sheri, 1992. "Spatial econometrics in practice : A review of software options," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 509-536, September.
  4. Keane, Michael P & Runkle, David E, 1992. "On the Estimation of Panel-Data Models with Serial Correlation When Instruments Are Not Strictly Exogenous," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(1), pages 1-9, January.
  5. David Card, 1995. "The Wage Curve: A Review," Journal of Economic Literature, American Economic Association, vol. 33(2), pages 285-299, June.
  6. Reza, Ali M, 1978. "Geographical Differences in Earnings and Unemployment Rates," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 201-08, May.
  7. Baltagi, Badi H. & Blien, Uwe, 1998. "The German wage curve: evidence from the IAB employment sample," Economics Letters, Elsevier, vol. 61(2), pages 135-142, November.
  8. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  9. Kathleen P. Bell & Nancy E. Bockstael, 2000. "Applying the Generalized-Moments Estimation Approach to Spatial Problems Involving Microlevel Data," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 72-82, February.
  10. Baltagi, Badi H & Griffin, James M, 1984. "Short and Long Run Effects in Pooled Models," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(3), pages 631-45, October.
  11. Kelejian, Harry H & Prucha, Ingmar R, 1999. "A Generalized Moments Estimator for the Autoregressive Parameter in a Spatial Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 509-33, May.
  12. Pannenberg, Markus & Schwarze, Johannes, 1998. "Labor market slack and the wage curve," Economics Letters, Elsevier, vol. 58(3), pages 351-354, March.
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