Unemployment, Labor Market Transitions, and Residual Wage Dispersion


Fitzenberger, Bernd ; Garloff, Alfred


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URL: http://ub-madoc.bib.uni-mannheim.de/940
URN: urn:nbn:de:bsz:180-madoc-9407
Document Type: Working paper
Year of publication: 2005
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: J64 J31 J21 E24 ,
Subject headings (SWD): Deutschland , Arbeitsmarkt , Lohn , Mindestlohn
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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Fitzenberger, Bernd ; Garloff, Alfred (2005) Unemployment, Labor Market Transitions, and Residual Wage Dispersion. Open Access [Working paper]
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