Wage Rigidities in Western Germany? Microeconometric Evidence from the 1990s

Abstract

This paper investigates whether and in what sense the west German wage structure has been ‘rigid’ in the 1990s. To test the hypothesis that a rigid wage structure has been responsible for rising low-skilled unemployment, I propose a methodology which makes less restrictive identifying assumptions than some previous related work. I find that the relative stability of educational wage premia was justified by market forces. However, relative wages did not respond to negative net demand shocks for young workers, as well as white-collar workers.

Keywords: Wages, unemployment, rigidities, identification, Germany

JEL Classification: J31, J64