Towards an East German Wage Curve - Nuts Boundaries, Labour Market Regions and Unemployment Spillovers

33 Pages Posted: 20 Jul 2017

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)

Multiple version iconThere are 2 versions of this paper

Date Written: July 2017

Abstract

The relevance of spatial effects in the wage curve can be rationalized by the model of monopsonistic competition in regional labour markets. However, distortions in extracting the regional unemployment effects arise in standard regional (i.e. NUTS) classifications as they fail to adequately capture spatial processes. In addition, the nonstationarity of wages and unemployment is often ignored. Both issues are particularly important in high unemployment regimes like East Germany where a wage curve is difficult to establish. In this paper, labour market regions defined by economic criteria are used to examine the existence of an East German wage curve. Due to the nonstationarity of spatial data, a global panel cointegration approach is adopted. By specifying a spatial error correction model (SpECM), equilibrium adjustments are investigated in time and space. The analysis gives evidence on a locally but not a spatially cointegrated wage curve for East Germany.

Keywords: Wage curve, labour market regions, global cointegration, spatial error-correction model

JEL Classification: J30, J60, C33, R15

Suggested Citation

Kosfeld, Reinhold and Dreger, Christian, Towards an East German Wage Curve - Nuts Boundaries, Labour Market Regions and Unemployment Spillovers (July 2017). DIW Berlin Discussion Paper No. 1675, Available at SSRN: https://ssrn.com/abstract=3004379 or http://dx.doi.org/10.2139/ssrn.3004379

Reinhold Kosfeld

University of Kassel - Economics ( email )

Nora-Platiel Str. 4
34109 Kassel
Germany

Christian Dreger (Contact Author)

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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