Lohnpolitik und Beschäftigung – Debatte ohne Ende?

Abstract

This paper takes a fresh look at the often confused -and therefore confusing -debate on the role of wage policy in tackling Germany's unemployment problem. The key issues in this debate are the relative importance of wages and aggregate demand in the determination of employment, the appropriate behavior of wages in relation to productivity growth, and the significance of the purchasing power effect of wages. We argue that the most useful tool to address and resolve these issues is the basic textbook model of aggregate supply and aggregate demand. Most importantly, the model predicts that employment is governed by the ratio of aggregate nominal demand and the nominal wage level. The empirical picture strongly supports this assertion. In contrast, the relation between the rate of wage growth and the rate of productivity growth does not play the causal role in determining employment that is widely attributed to it.

Stimulating Employment Growth with Higher Wages? A New Approach to Addressing an Old Controversy

“…This argument can be extended to a dynamic setting and to open economies, where it would state that a permanent increase in domestic labour costs should reduce the subsequent employment growth rate of an economy, because firms substitute labour with capital, or – in the context of globalization – they outsource production to low wage countries. Yet, even a brief look at commonly repeated public discussions makes clear that there is no general consensus in the society about the direction of the impact of wages on employment growth, let alone a common sense about the quantitative size of the effect (Jerger and Landmann 2002). Trade unionists even frequently argue that higher wages will actually lead to stronger employment growth.…”

Wages and Employment Growth: Disaggregated Evidence for West Germany

“…Yet, even a brief look at commonly repeated public discussions or at the arguments of trade unions prior to wage negotiations makes clear that there is by far no general consensus in the society about the employment effects of wage increases (Jerger/Landmann, 2002). After all, wages are not only a cost factor for firms, but also account for roughly 2/3 of national income and are thus a major determinant of aggregate demand.…”

“…It is therefore argued that an appropriate way to increase employment growth and -inter alia -to fight the seminal problem of unemployment is a policy of wage moderation. A rule of thumb says that wages can rise at most by the rate of productivity growth plus the inflation rate without having adverse employment effects, and positive employment growth must be "bought" by keeping the growth rate of wages below this benchmark level (Sachverstaendigenrat, 2004; Lehment, 2000).Yet, even a brief look at commonly repeated public discussions or at the arguments of trade unions prior to wage negotiations makes clear that there is by far no general consensus in the society about the employment effects of wage increases (Jerger/Landmann, 2002). After all, wages are not only a cost factor for firms, but also account for roughly 2/3 of national income and are thus a major determinant of aggregate demand.…”