Minimum wages, wage dispersion and unemployment : a review on new search models

"This paper analyses theoretical effects of minimum wages on employment and the wage distribution under a frictional setting. I review new developments in search theory and discuss the influence of minimum wages on wages and employment under each setting. Thereby, a major theoretical focus of the paper is the integration of heterogeneity on both sides of the market in equilibrium search models. In the homogeneous case minimum wages do not affect employment, while in the heterogenous case theoretical results are mixed. There is no unique connection between unemployment and minimum wages, and the effect can be positive, zero or negative. However, the most advanced models, integrating heterogeneity on both sides of the market, seem to support the hypothesis that an increase in the minimum wage generally leads to an increase in unemployment as well." (Author's abstract, IAB-Doku) ((en))Lohnpolitik, Mindestlohn, Beschäftigungseffekte, Einkommenseffekte, Lohndifferenzierung, Arbeitslosigkeit, Arbeitsplatzabbau, Lohntheorie, labour turnover, friktionelle Arbeitslosigkeit, Sucharbeitslosigkeit, Lohnstruktur, Arbeitsplatzsuchtheorie

Skill Biased Technological Change and Endogenous Benefits: The Dynamics of Unemployment and Wage Inequality

In this paper, we study the effect of skill-biased technological change on unemployment when benefits are linked to the evolution of average income and when this is not the case. In the former case, an increase in the productivity of skilled workers and hence their wage leads to an increase in average income and hence in benefits. The increased fallback income, in turn, makes unskilled workers ask for higher wages. As higher wages are not justified by respective productivity increases, unemployment rises. More generally, we show that skill-biased technological change leads to increasing unemployment of the unskilled when benefits are endogenous. The model provides a theoretical explanation for diverging developments in wage inequality and unemployment under different social benefits regimes: Analyzing the social legislation in 14 countries, we find that benefits are linked to the evolution of average income in Continental Europe but not in the U.S. and the UK. Given this institutional difference, our model predicts that skill-biased technological change leads to rising unemployment in Continental Europe and rising wage inequality in the U.S. and the UK. --Unemployment,Skill-Biased Technological Change,Benefits

Training, Mobility, and Wages: Specific Versus General Human Capital

This paper considers training, mobility decisions and wages together to test for the specificity of human capital contained in continuing training courses. We empirically analyse the relationship between training, mobility and wages in two ways. First, we examine the correlation between training and mobility. In a second step, we consider wage effects of mobility taking training participation into account. First, we find that training participation is negatively correlated with the mobility decision and that training participation decreases the probability of individuals to change the job. Second, we find that wages are lower for job changers for the group of training participants, so wages decrease when trained individuals are mobile. Finally, training participation negatively affects the individuals's subjective valuation of the quality of their last job change. Taken together, these results suggest that there is some specific human capital, which is incorporated into training and lost when moving between jobs. --training,mobility,wages,search,job matching

Unemployment, Labor Market Transitions, and Residual Wage Dispersion

It is commonplace in the debate on Germany?s labor market problems to argue that high unemployment and low wage dispersion are related. This paper analyses the relationship between unemployment and residual wage dispersion for individuals with comparable attributes. In the conventional neoclassical point of view, wages are determined by the marginal product of the workers. Accordingly, increases in union minimum wages result in a decline of residual wage dispersion and higher unemployment. A competing view regards wage dispersion as the outcome of search frictions and the associated monopsony power of the firms. Accordingly, an increase in search frictions causes both higher unemployment and higher wage dispersion. The empirical analysis attempts to discriminate between the two hypotheses for West Germany analyzing the relationship between wage dispersion and both the level of unemployment as well as the transition rates between different labor market states. The findings are not completely consistent with either theory. However, as predicted by search theory, one robust result is that unemployment by cells is not negatively correlated with the within?cell wage dispersion. --search friction,labor demand,labor market transitions,wages

Skill Biased Technological Change and Endogenous Benefits: The Dynamics of Unemployment and Wage Inequality

In this paper, we study the effect of skill-biased technological change on unemployment when benefits are linked to the evolution of average income and when this is not the case. In the former case, an increase in the productivity of skilled workers and hence their wage leads to an increase in average income and hence in benefits. The increased fallback income, in turn, makes unskilled workers ask for higher wages. As higher wages are not justified by respective productivity increases, unemployment rises. More generally, we show that skill-biased technological change leads to increasing unemployment of the unskilled when benefits are endogenous. The model provides a theoretical explanation for diverging developments in wage inequality and unemployment under different social benefits regimes: Analyzing the social legislation in 14 countries, we find that benefits are linked to the evolution of average income in Continental Europe but not in the U.S. and the UK. Given this institutional difference, our model predicts that skill-biased technological change leads to rising unemployment in Continental Europe and rising wage inequality in the U.S. and the UK.

On power-boundedness of interval matrices

AbstractIn a recent paper by G. Mayer [8] the convergence of the sequence {[A]k} of the powers of an interval matrix [A] to the nullmatrix was investigated. In this note we give some conditions for the boundedness of the sequence {k−α[A]k}, where α is a nonnegative number. The connection to the α-stability of the set [A] is discussed

Descriptive Evidence on Labor Market Transitions and the Wage Structure in Germany

Equilibrium search theory suggests that the wage distribution in a cross section of workers is closely related to labor market transitions and associated wage changes. Accordingly, job?to?job transitions are central in explaining the wage distribution. This paper uses the IAB employment subsample to describe the empirics of labor market transitions and the wage structure in Germany. Motivated by search theory, we use the data to explore descriptively labor market transitions and features of the wage structure. We find that labor market transition rates vary substantially over the business cycle and with individual characteristics. Regarding job?to?job transitions, we find considerable wage changes. Most job changes involve considerable gains, but a number of individuals incurs a remarkable loss. Regarding the wage structure, we find strong effects of job?to?job transitions, age, and education on wage mobility. Based on our descriptive analysis, we conclude that indeed a close relationship exists between wages and labor market transitions as predicted by search theory. However, the noticeable share of wage losses following job?to?job changes contradicts a simple search theoretic perspective. --search friction,labor market transitions,wages

Do small labor market entry cohorts reduce unemployment?

"In this paper we study the effect of small labor market entry cohorts on (un)employment in Western Germany. From a theoretical point of view, decreasing cohort sizes may on the one hand reduce unemployment due to 'inverse cohort crowding' or on the other hand increase unemployment if companies reduce jobs disproportionately. Consequently, the actual effect of cohort shrinking on (un)employment is an empirical question. We analyze the relationship between (un)employment and cohort sizes using a long panel of Western German labor market regions. In this context, we account for both the likely endogeneity of cohort size due to migration of the (young) workforce across regions using lagged births as instruments as well as for temporal and spatial autocorrelation. Our results provide good news for the (Western) German labor market: small entry cohorts are indeed likely to decrease the overall unemployment rate and thus to improve the situation of job seekers. Accordingly, with regard to the employment rate we find that it is positively affected by a decrease in the youth share." (Author's abstract, IAB-Doku) ((en))demografischer Wandel - Auswirkungen, Arbeitslosenquote, Bevölkerungsstruktur, Altersstruktur, regionaler Vergleich, Bevölkerungsrückgang, Beschäftigungseffekte, Arbeitsuchende, Arbeitsmarktchancen, Geburtenrückgang, Jugendliche, junge Erwachsene, demografischer Wandel - internationaler Vergleich, Westdeutschland, Bundesrepublik Deutschland, OECD

Minimum wages, wage dispersion and unemployment: a review on new search models

"This paper analyses theoretical effects of minimum wages on employment and the wage distribution under a frictional setting. I review new developments in search theory and discuss the influence of minimum wages on wages and employment under each setting. Thereby, a major theoretical focus of the paper is the integration of heterogeneity on both sides of the market in equilibrium search models. In the homogeneous case minimum wages do not affect employment, while in the heterogenous case theoretical results are mixed. There is no unique connection between unemployment and minimum wages, and the effect can be positive, zero or negative. However, the most advanced models, integrating heterogeneity on both sides of the market, seem to support the hypothesis that an increase in the minimum wage generally leads to an increase in unemployment as well." (author's abstract)Die Studie analysiert die theoretischen Auswirkungen von Mindestlöhnen auf Beschäftigung und Lohnspreizung in einem fluktuationsbedingten Szenario. Es wird ein Überblick über neue theoretische Forschungsansätze gegeben und der Einfluss von Mindestlöhnen auf Einkommen und Beschäftigung in jedem einzelnen Szenario diskutiert. Dabei liegt der wichtigste theoretische Schwerpunkt auf der Integration der Heterogenität auf beiden Seiten des Marktes in Gleichgewichtsmodellen. Im Falle von Homogenität haben Mindestlöhne keinen Einfluss auf Beschäftigung, während im Fall von Heterogenität die theoretischen Ergebnisse gemischt sind. Es gibt keine eindeutige Verbindung zwischen Beschäftigung und Mindestlöhnen, und die Auswirkungen können positiv, null oder negativ sein. Die fortgeschrittensten Modelle, die die Heterogenität auf beiden Seiten des Marktes integrieren, scheinen jedoch die Hypothese zu unterstützen, dass ein Ansteigen des Mindestlohns im allgemeinen auch ein Ansteigen der Arbeitslosigkeit zur Folge hat. (IAB