SPATIAL HETEROGENEITY AND THE WAGE CURVE REVISITED &ast (original) (raw)
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A spatial panel approach to the east German wage curve
2002
The standard estimator introduced by Blanchflower and Oswald (1994) to determine the short run unemployment elasticity of pay controls for both regional and time period fixed effects. This paper identifies two general cases in which the estimator that controls for regional fixed effects but not for time period fixed effects offers a better estimate of this elasticity: (1) the correlation coefficients of the unemployment rate observed at single regions over time are large and diminish slightly over time, and (2) the national unemployment rate is high. The standard estimator also takes no account of the spatial relationship among regions. Ignoring this relationship may seriously bias the results. To investigate this, the East German wage curve is estimated including spatial effects using panel data classified into 114 administrative districts over the period 1993-1999. Moreover, we also control for the possibility that the unemployment rate is correlated with the disturbance term. The short run unemployment elasticity of pay found for Eastern Germany amounts to-0.112, a figure very close to the-0.10 posited by Blanchflower and Oswald, though its foundation is completely different. In contrast to Blanchflower and Oswald, our figure is corrected for spatial effects and also captures the downward effect of the national unemployment rate. Without them, the unemployment elasticity would successively more than double at-0.242 or shrink to-0.006.
Quaderni della facoltà di …, 2010
The geographical distribution and persistence of regional/local unemployment rates in heterogeneous economies (such as Germany) have been, in recent years, the subject of various theoretical and empirical studies. Several researchers have shown an interest in analysing the dynamic adjustment processes of unemployment and the average degree of dependence of the current unemployment rates or gross domestic product from the ones observed in the past. In this paper, we present a new econometric approach to the study of regional unemployment persistence, in order to account for spatial heterogeneity and/or spatial autocorrelation in both the levels and the dynamics of unemployment. First, we propose an econometric procedure suggesting the use of spatial filtering techniques as a substitute for fixed effects in a panel estimation framework. The spatial filter computed here is a proxy for spatially distributed region-specific information (e.g., the endowment of natural resources, or the size of the 'home market') that is usually incorporated in the fixed effects coefficients. The advantages of our proposed procedure are that the spatial filter, by incorporating region-specific information that generates spatial autocorrelation, frees up degrees of freedom, simultaneously corrects for time-stable spatial autocorrelation in the residuals, and provides insights about the spatial patterns in regional adjustment processes. In the paper we present several experiments in order to investigate the spatial pattern of the heterogeneous autoregressive coefficients estimated for unemployment data for German NUTS-3 regions.
Regional price levels and the agglomeration wage differential in western Germany
The Annals of Regional Science, 2009
We analyse whether wage differences between cities and rural areas in western Germany are due to unobserved differences in regional price levels. Since regional prices are available for only 10% of the regions we use multiple imputation to generate prices for all regions. Our results show that the nominal agglomeration wage differential is 25%, whereas the real differential is 19%. If we control for the composition of the labour force and jobs, the real wage differential is 4%. If we additionally control for differences in regional building land prices the agglomeration wage differential vanishes.
2007
In recent years, researchers and policy makers have shown a rising interest in the study and interpretation of socio-economic processes at the meso- or regional level. From that perspective, the region is often considered to be the ‘place of action’, where micro-behaviour and macro-outcomes come together. The present study offers a novel statistical analysis of the development of regional labour markets in Germany. The objective of the dissertation is to analyse their patterns and evolution, as well as the associated spatial disparities. In particular, Germany – with its large number of small geographical units (NUTS-3 districts in EU terminology) and complex socio-economic ramifications emerging from the reunification of 1990 – is a textbook case for such spatial-economic analyses. The first empirical part of the study concerns the spatio-temporal analysis of regional labour market aggregates. The focus is on two main issues: (a) the forecast of regional employment variations; and (b) the analysis of unemployment differentials in the presence of spatial autocorrelation. The second empirical part concerns the analysis of the diversification of journey-to-work trips. In particular, we focus on the investigation of the commuting flows’ heterogeneity/homogeneity and of the related level of ‘openness’ of regions. The results draw a fairly consistent picture of German regional labour markets and their hierarchies, in which spatial heterogeneity is persistent in time, and can be explained only in part by recent socio-economic trends or regional interactions.
Wage flexibility in regional labour markets: evidence from Germany and Italy
Regional Studies, 2010
This paper investigates the functioning of regional labour markets in Italy and Germany for different employee groups and regions. We derive theoretical hypotheses on group specific correlations between regional unemployment and individual wages distinguishing between regions. Using micro data matched to local unemployment rates, we specify and empirically test wage equations. For Italy we find no evidence in favour of a relationship between wages and local unemployment. In Germany results appear to be sensitive to model specification and type of employees. In both countries, the reaction of wages to local unemployment varies significantly along the wage distribution, being more sensitive around median quantiles.
A Spatial-Dependence Continuous-Time Model for Regional Unemployment in Germany
This paper analyzes patterns of regional labour market development in Germany over the period 2000-2003 by means of a spatial-dependence continuous-time model. (Spatial) panel data are routinely modelled in discrete time. However, there are compelling arguments for continuous time modelling of (spatial) panel data. Particularly, most social processes evolve in continuous time such that analysis in discrete time is an oversimplification, gives a distorted representation of reality and leads to misinterpretation of estimation results. The most compelling reason for continuous time modelling is that, in contrast to discrete time modelling, it allows for adequate modelling of dynamic adjustment processes (see, for example, Special Issue 62:1, 2008, of Statistica Neerlandica). We introduce spatial dependence in a continuous time modelling framework and apply the unified framework to regional labour market development in Germany. The empirical results show substantial autoregressive effects for unemployment and population development, as well as a negative effect of unemployment development on population development. The reverse effect is not significant. Neither are the effects of the development of regional average wages and of the manufacturing sector on the development of unemployment and population.