Stimulating Employment Growth with Higher Wages? A New Approach to Addressing an Old Controversy

Jens Suedekum and Uwe Blien ()

Kyklos, 2007, vol. 60, issue 3, 441-464

Abstract: We analyse the impact of wages on employment growth in West German local industries (1993–2002), addressing the tension between cost and potentially offsetting demand side effects. We construct a neutralised regional wage level that is detached from various productivity influences. A positive value implies ‘overly high’ labour costs, but also high local purchasing power. A subsequent employment growth regression yields significantly negative effects associated with this indicator. Cost push effects dominate, but our estimates suggest that demand side repercussions have a mitigating effect. There is considerable variation across industries, but in no case we find a positive employment reaction.

Date: 2007
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https://doi.org/10.1111/j.1467-6435.2007.00379.x

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Persistent link: https://EconPapers.repec.org/RePEc:bla:kyklos:v:60:y:2007:i:3:p:441-464

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