Local wages and sectoral wage bargaining in Germany

Thiess Büttner

No 30, Discussion Papers from University of Konstanz, Center for International Labor Economics (CILE)

Abstract: The peculiarities of the German system of labor relations suggest, that the efficiency wage hypothesis stating an inverse relation between local wages and local unemployment should be related to sectoral wage bargaining on the national level. For that purpose a theoretical model is presented which relates firm specific wages with wage negotiations on a supra-firm level. It is shown that there exists a reasonable bargaining scheme which supports an aggregate wage gap. The model shows a particular nonlinearity of the wage curve, which suggests that there is no influence of unemployment in low wage / high unemployment regions. In the empirical section a wage curve estimation using aggregate data is presented. Although the combined explanation with efficiency and negotiated wages cannot be tested directly, some supporting results are found.

Date: 1995
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