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Local and Spatial Cointegration in the Wage Curve: A Spatial Panel Analysis for German Regions

Diskussionspapiere extern

Reinhold Kosfeld, Christian Dreger

Bonn: IZA, 2015, 28 S.
(Discussion Paper Series / Forschungsinstitut zur Zukunft der Arbeit ; 9577)

Abstract

The wage curve introduced by Blanchflower and Oswald (1990, 1994) postulates a negative correlation between wages and unemployment. Empirical results focus on particular theoretical channels establishing the relationship. Panel models mostly draw on unionized bargaining or the efficiency wage hypothesis. Spatial econometric approaches can be rationalized by monopsonistic competition. However, the approaches either ignore the issue of nonstationarity or treat the data as if it were nonspatial. In this paper, we adopt a global cointegration approach recently proposed by Bienstock and Felsenstein (2010) to account for nonstationarity of regional data. By specifying a spatial error correction model (SpECM), equilibrium adjustments are considered in both space and time. Applying the methodology for West German labour markets, we find strong evidence for the existence of a long-run wage curve with spatial effects.



JEL-Classification: J30;J60;C33;R15
Keywords: wage curve, regional labour markets, spatial panel models, global cointegration analysis
Externer Link:
http://ftp.iza.org/dp9577.pdf

Frei zugängliche Version: (econstor)
http://hdl.handle.net/10419/126663

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