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

24 Pages Posted: 20 Jul 2007

See all articles by Jens Suedekum

Jens Suedekum

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Institute for the Study of Labor (IZA)

Uwe Blien

Institute for Employment Research (IAB); IZA Institute of Labor Economics

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.

Suggested Citation

Südekum, Jens and Blien, Uwe, Stimulating Employment Growth with Higher Wages? A New Approach to Addressing an Old Controversy. Kyklos, Vol. 60, No. 3, pp. 441-464, August 2007, Available at SSRN: https://ssrn.com/abstract=1001369 or http://dx.doi.org/10.1111/j.1467-6435.2007.00379.x

Jens Südekum (Contact Author)

Heinrich-Heine-University Duesseldorf, Duesseldorf Institute for Competition Economics (DICE) ( email )

Universitaetsstr. 1
Duesseldorf, NRW 40225
Germany

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Uwe Blien

Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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