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Stimulating Employment Growth with Higher Wages? A New Approach to Addressing an Old Controversy
Author(s) -
Suedekum Jens,
Blien Uwe
Publication year - 2007
Publication title -
kyklos
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.766
H-Index - 58
eISSN - 1467-6435
pISSN - 0023-5962
DOI - 10.1111/j.1467-6435.2007.00379.x
Subject(s) - economics , purchasing power , labour economics , demand side , productivity , wage , wage growth , german , value (mathematics) , estimation , microeconomics , macroeconomics , history , archaeology , machine learning , computer science , management
SUMMARY 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.