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 that makes less restrictive identifying assumptions than some previous related work. I find that market forces justified the relative stability of educational wage premia. Relative wages did not, however, respond to negative net demand shocks for young workers and white-collar workers.

Keywords: Wages, unemployment, rigidities, identification, Germany

JEL Classification: J31, J64