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

30 Pages Posted: 26 Dec 2015

See all articles by Reinhold Kosfeld

Reinhold Kosfeld

University of Kassel - Economics

Christian Dreger

European University Viadrina Frankfurt (Oder); IZA Institute of Labor Economics; Chinese Academy of Social Sciences (CASS)

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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.

Keywords: wage curve, regional labour markets, spatial panel models, global cointegration analysis

JEL Classification: J30, J60, C33, R15

Suggested Citation

Kosfeld, Reinhold and Dreger, Christian, Local and Spatial Cointegration in the Wage Curve: A Spatial Panel Analysis for German Regions. IZA Discussion Paper No. 9577, Available at SSRN: https://ssrn.com/abstract=2708390

Reinhold Kosfeld (Contact Author)

University of Kassel - Economics ( email )

Nora-Platiel Str. 4
34109 Kassel
Germany

Christian Dreger

European University Viadrina Frankfurt (Oder) ( email )

Frankfurt (Oder)
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

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