Unemployment, labor market transitions, and residual wage dispersion

  • Abstract: It is commonplace in the debate on Germany's labor market problems to argue that high unemployment and low wage dispersion are related. This paper analyses the relationship between unemployment and residual wage dispersion for individuals with comparable attributes. In the conventional neoclassical point of view, wages are determined by the marginal product of the workers. Accordingly, increases in union minimum wages result in a decline of residual wage dispersion and higher unemployment. A competing view regards wage dispersion as the outcome of search frictions and the associated monopsony power of the firms. Accordingly, an increase in search frictions causes both higher unemployment and higher wage dispersion. The empirical analysis attempts to discriminate between the two hypotheses for West Germany analyzing the relationship between wage dispersion and both the level of unemployment as well as the transition rates between different labor market states. The findings are not completely consistent with either theory. However, as predicted by search theory, one robust result is that unemployment by cells is not negatively correlated with the within cell wage dispersion.

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Metadaten
Author:Bernd FitzenbergerORCiDGND, Alfred Garloff
URN:urn:nbn:de:hebis:30-6258
Parent Title (German):ZEW Discussion Paper ; 05-04
Publisher:ZEW
Place of publication:Mannheim
Document Type:Working Paper
Language:English
Date of Publication (online):2005/04/11
Year of first Publication:2005
Publishing Institution:Universit├Ątsbibliothek Johann Christian Senckenberg
Release Date:2005/04/11
Tag:labor demand; labor market transitions; search friction; wages
Source:ZEW Discussion Paper ; 05-04
HeBIS-PPN:128812435
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht