A Cointegration Model for Search Equilibrium Wage Formation

Journal of Applied Economics, Vol. 9, No. 2, pp. 235-254, November 2006

Posted: 5 Dec 2006

See all articles by Lourens Broersma

Lourens Broersma

affiliation not provided to SSRN

Frank A. G. den Butter

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Udo Kock

International Monetary Fund (IMF)

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Abstract

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

Broersma, Lourens and den Butter, Frank A.G. and Kock, Udo, A Cointegration Model for Search Equilibrium Wage Formation. Journal of Applied Economics, Vol. 9, No. 2, pp. 235-254, November 2006 , Available at SSRN: https://ssrn.com/abstract=949460

Lourens Broersma (Contact Author)

affiliation not provided to SSRN ( email )

Frank A.G. Den Butter

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Udo Kock

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6299 (Phone)

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