Wages and Employment Growth: Disaggregated Evidence for West Germany

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may Wages and Employment Growth: Disaggregated Evidence for West Germany AbstractWe address the effects of wages on employment growth on the basis of a theoretical model from which cost and demand effects can be derived. In the empirical analysis we take a highly disaggregated perspective and apply a newly developed shift-share regression technique on an exhaustive and very accurate data set for West Germany. The regression shows that the impact of regional wages on employment growth is significantly negative. There is some variation of this effect across sectors, but in no case we find support for the claim that an exogenous wage increase leads to higher employment growth. Keywords:Employment Growth, Shift-Share-Analysis, Regional Wages, Purchasing Power Argument.JEL-Classification: J23, E24, R11 3 1) IntroductionThe connection between wages and employment growth is among the most fundamental macroeconomic relations. Most economists agree that higher labour costs tend to reduce the employment growth rate of an economy. An increase in the relative factor price of labour will ceteris paribus cause a substitution of input factors and make production more capital intensive. Or, in the context of globalization, higher domestic labour costs will favour a shift of production towards low wage countries. 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. In view of this, a "purchasing power argument"(henceforth: PPA) remains vital according to which higher wages can actually increase the employment growth rate due to demand side effects. Versions of the PPA have a long tradition in the his...

Regional employment trends of wood-based industries in Germany’s forest cluster: a comparative shift-share analysis of post-reunification development

“…An overly high regional wage level significantly reduces employment growth especially in manufacturing industries, because enterprises keeping pace with the technological progress (automatisation) replace employees by machines if wages and labour costs increase (Suedekum et al 2006;Suedekum and Blien 2004;Blien et al 2003). Labour costs in both the wood-based industries and the producing industries were considerably higher in western Germany than in eastern Germany (Table 7).…”

Analysis of Employment in EU According to Europe 2020 Strategy Targets

“…In contrast, Keynesian models declare that changes in real wages will create changes in the level of employment, therefore, when workers perceive their wages to be too low, they prefer to idle. The results of Suedekum and Blien (2004) spoke in favor of the neoclassical theory, indicating a negative relationship between wages and employment for former West Germany. Apergis and Theodosiou (2008) indicated a long-term relationship between the real wages and employment, suggesting that the reduction in real wages is not large enough to induce an increase in production and employment.…”

The importance of spatial autocorrelation for regional employment growth in Germany

“…The positive influence of the share of high qualified employees on the employment development of German regions is widely acknowledged. Empirical evidence is delivered (among others) by Suedekum and Blien (2004) and Blien et al (2003).…”

“…In this paper, the effects of wage and productivity need to be separated. Therefore one has to identify the wage, which is not already explained by productivity ('excessive wage', see 2004).…”

“…For this purpose, the wage is regressed on a set of explanatory variables following the approach proposal by Suedekum and Blien (2004). In particular the wage is regressed on productivity, yearly varying region effects and additional variables in an integrated framework:…”