The German wage curve: evidence from the IAB employment sample

This paper examines the German wage curve using the Institut fur Arbeitsmar kt und Berufsforschung (IAB) employment sample over the period 1981-1990. A random sample of 6590 employees covering 142 labor market regions over a t en year period is considered. The total number of observations is 40 852. T aking into account the endogeneity of unemployment as well as controlling f or region and time effects, this paper finds support for the wage curve in Germany. The overall unemployment elasticity estimate is -0.07 and is highe r for younger workers than older workers. The wages of less qualified worke rs are more responsive to local unemployment rates than the wages of more q ualified workers. Also the wages of men are slightly more responsive to loc al unemployment rates than the wages of women. Ignoring endogeneity of the local unemployment rate yields results in favor of the wage curve only for younger and less qualified workers. Accounting for endogeneity of the unemp loyment rate yields evidence in favor of the wage curve across all types of workers. (C) 1998 Elsevier Science S.A. All rights reserved.