A Cointegration Model for Search Equilibrium Wage Formation

International Monetary Fund

No 2004/092, IMF Working Papers from International Monetary Fund

Abstract: In flow models of the labor market, wages are determined by negotiations between workers and employers on the surplus value of a realized match. From this perspective, this paper presents an econometric analysis of the influence of labor market flows on wage formation as an alternative to the traditional specification of wage equations in which unemployment represents Phillipscurve or wage-curve effects. The paper estimates a dynamic wage equation for the Netherlands using a cointegration approach. It finds that labor flows, and notably flows from outside the labor market, are important determinants of both short-run and long-run wage setting.

Keywords: WP; Phillips curve; income stream (search for similar items in EconPapers)
Pages: 19
Date: 2004-05-01
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