New evidence on the dynamic wage curve for Western Germany: 1980–2004

Abstract

Blanchflower and Oswald [Blanchflower, David G. and Oswald, Andrew J., 1994a, The Wage Curve, (Cambridge, MA, MIT Press), Blanchflower, David G. and Oswald, Andrew J., 1994b, Estimating a Wage Curve for Britain 1973–90, The Economic Journal 104, 1025–1043. Eine praktische Einführung, Nürnberg] reported that they have found an ‘empirical law of economics’ — the Wage Curve. Our paper reconsiders the western German Wage Curve using disaggregated regional data and is based on almost one million employees drawn from the Federal Employment Services of Germany over the period 1980–2004. We find that the wage equation is highly autoregressive but far from unit root. The unemployment elasticity is significant but relatively small: only between − 0.02 and − 0.04. We also check the sensitivity of this elasticity for different population groups (young versus old, men versus women, less educated versus highly educated, German native versus foreigner), confirming that it is stronger the weaker the bargaining power of the particular group.