The Wage Curve of 1989 : a multilevel analysis on the relationship between regional wages and regional unemployment rates

Abstract

"In the paper the results of a test of Blanchflower and Oswald's wage curve hypothesis are presented. The wage curve is a non-linear inverse relationship between the regional unemployment rate and the regional wage level: high unemployment is associated with rather low wages. For the theoretical foundation of this relationship bargaining and efficiency wage models are used. The test of the wage curve is based on data from the IAB employment sample and on the unemployment statistics for districts (Kreise) and regions (Länder) of the Federal Republic of Germany (West), all for 1989. The new methods of multilevel analysis used are particularly well suited for the empirical micro-foundation of macroeconomics and regional economics. Such methods are based on models with random coefficients. The results confirm the existence of a wage curve in the Federal Republic of Germany, which is, however, flatter than in other countries. The elasticity of wages with respect to the unemployment rate is approx. -0.046 on the regional (Länder) level (or -0.049 on the district level). The difference in wages between Bremen and Baden-Württemberg, which can be attributed to unemployment, is therefore about 5%. The relation found is to be interpreted firstly as a purely statistical correlation. Whether it can be regarded as a causal relationship will be shown in further studies which are in preparation at present." (Author's abstract, IAB-Doku) ((en))

Cite article

Blien, U. (1995): Die Lohnkurve von 1989. Eine Mehrebenenanalyse zum Zusammenhang von regionalen Durchschnittslöhnen und der regionalen Arbeitslosenquote. In: Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Vol. 28, No. 2, p. 155-170.