Stimulating employment growth with higher wages?

Abstract

"We analyse the impact of wages on employment growth in West German local industries (1993-2002), addressing the tension between cost and potentially offsetting demand side effects. We construct a neutralised regional wage level that is detached from various productivity influences. A positive value implies 'overly high' labour costs, but also high local purchasing power. A subsequent employment growth regression yields significantly negative effects associated with this indicator. Cost push effects dominate, but our estimates suggest that demand side repercussions have a mitigating effect. There is considerable variation across industries, but in no case we find a positive employment reaction." (Author's abstract, IAB-Doku) ((en))

Cite article

Südekum, J. & Blien, U. (2007): Stimulating employment growth with higher wages? A new approach to addressing an old controversy. In: Kyklos, Vol. 60, No. 3, p. 441-464. DOI:10.1111/j.1467-6435.2007.00379.x