What are the benefits of insreasing wage differentials?

Abstract

"Theoretically greater wage flexibility, i.e. larger wage dispersion according to industry, regions, occupational groups and qualifications, fosters employment growth. At the same time the number of vacancies can be decreased and the number of unemployed, especially the long-term unemployed, can be reduced. The creation of low-wage jobs, primarily in the service sector, is encouraged and dismissals can be delayed. However, the growth of dynamic firms is favoured by rigid wage structures, and consequently restrained by greater flexibility. Hence, the theoretical effect is not clear. This paper first describes the theoretical background and then reviews recent empirical studies on wage disparity in the old German Länder. Finally in an international comparative econometric study the effects of wage disparities, the unemployment benefits and wage-bargaining systems on employment growth and the number of long-term unemployed as a percentage of the total unemployed are analysed. The conclusions from the empirical findings and their implications for economic policy are discussed in the last section." (Author's abstract, IAB-Doku) ((en))

Cite article

Bellmann, L. (1995): Was bringt die Spreizung der Löhne für den Arbeitsmarkt? In: Mitteilungen aus der Arbeitsmarkt- und Berufsforschung, Vol. 28, No. 3, p. 391-398.