A Cointegration Model for Search Equilibrium Wage Formation
20 Pages Posted: 15 Feb 2006
Date Written: May 2004
In flow models of the labor market, wages are determined by negotiations between workers and employers on the surplus value of a realized match. From this perspective, this paper presents an econometric analysis of the influence of labor market flows on wage formation as an alternative to the traditional specification of wage equations in which unemployment represents Phillips-curve or wage-curve effects. The paper estimates a dynamic wage equation for the Netherlands using a cointegration approach. It finds that labor flows, and notably flows from outside the labor market, are important determinants of both short-run and long-run wage setting.
Keywords: wage curve, labor market flows, cointegration model
JEL Classification: J31, C51
Suggested Citation: Suggested Citation