Recent and Prospective Trends of the Demand for Labour in the Federal Republic of Germany: An ex-post Analysis and some Simulation Results with a Macro- and Linked-lndustry Model

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In this paper I shall try to analyse recent and future trends of the demand for labour and its determinants in the FRG at the national level as well as in selected industries.

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... Ein zentraler Einwand gegen die These vo.n der beschäftigungserhöhenden Wirkung einer zurückhaltenden Lohnpolitik bei flexiblen Wechselkursen beruht auf folgender Überlegung [Mertens, 1978; Koellreuter, 1978] [Giersch, 1977; Vaubel, 1978]. Die Wechselkursänderungserwartungen ergeben sich in unserem Modell analog zu Gleichung (5): ...
Wage Policies and Employment under Fixed and Flexible Exchange Rates. — Under flexible exchange rates moderate wage policies lead to increased employment via an interaction between profitability and real-balance effects. The employment increase, which results from a lower nominal wage increase, is smaller than under fixed exchange rates. The reason for this difference is that moderate wage policies under fixed exchange rates cause an additional expansion in the money supply, thereby increasing the employment effects of the wage policies. If expectations vis-à-vis price and exchange rate changes are taken into consideration, it is not impossible that a small increase in domestic wages will cause a decrease in inflation expectations and an increase in the demand for the domestic currency. A drop in real demand thereby induced, could be counteracted by a monetary policy aiming at ensuring that the target inflation rate is not undershot.
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The own-wage elasticity of labor demand represents the effect of higher wages on the demand for labor and, thus, determines the impact of supply shocks, minimum wages, or collective wage agreements on the labor market. Both theoretical models and the body of empirical evidence state that an increase in the wage rate makes establishments reduce their labor demand. This dissertation contains three scientific essays that provide new empirical evidence on the own-wage elasticity of labor demand. The analysis covers the German labor market and focuses on the interaction of labor demand and frictions, namely coordination or transaction barriers that interfere with the functioning of the market mechanism. Apart from analyzing labor demand, the estimated models and elasticities also contribute to the understanding of the following features of the German labor market: job polarization, minimum wages, and labor shortage.
Using a representative establishment data set for Germany, I show that, in line with the existing literature for several countries, firms’ adjustment costs for employment are characterized by a fixed and convex functional form. Furthermore, they are asymmetric with dismissal costs exceeding hiring costs. An analysis of firms’ adjustment in the period 1996–2010 also indicates that adjustment behavior has changed over time. Comparing the employment adjustment in the two observed business cycles comprising the years 1996–2003 and 2004–2010, I find that the adjustment speed was higher in the second business cycle indicating that adjustment costs have fallen in recent years.
This study surveys time-series studies of the short-run demand for labor in the United States. The elasticity of labor demand in response to a change in wages, holding output and price of capital constant, is similar in a large number of studies; the likeliest short-run (one-year) elasticity is -.15. The elasticity with respect to a change in output, holding factor prices constant, is.75 after one year, with an even stronger agreement among the studies surveyed. These estimates are used to illustrate, for four policies equivalent to subsidies or taxes on wages, how their short-run impacts on employment can be evaluated.
From a comparison of Figures 2 to 8 it appears that the width of loops obtained in each trade cycle has tended to narrow, suggesting a reduction in the dependence of the rate of change of wage rates on the rate of change of unemployment. There seem to be two possible explanations of this. First, in the coal and steel industries before the first world war sliding scale adjustments were common, by which wage rates were linked to the prices of the products.3 Given the tendency of product prices to rise with an increase in business activity and fall with a decrease in business activity, these agreements may have strengthened the relation between changes in wage rates and changes in unemployment in these industries. During the earlier years of the period these industries would have fairly large weights in the wage index, but with the greater coverage of the statistical material available in later years the weights of these industries in the index would be reduced. Second, it is possible that the decrease in the width of the loops resulted not so much from a reduction in the dependence of wage changes on changes in unemployment as from the introduction of a time lag in the response of wage changes to changes in the level of unemployment, caused by the extension of collective bargaining and particularly by the growth of arbitration and conciliation procedures. If such a time lag existed in the later years of the period the wage change in any year should be related, not to average unemployment during that year, but to the average unemployment lagged by, perhaps, several months. This would have the effect of moving each point in the diagrams horizontally part of the way towards the point of the preceding year and it can easily be seen that this would widen the loops in the diagrams. This fact makes it difficult to discriminate at all closely between the effect of time lags and the effect of dependence of wage changes on the rate of change of unemployment.
Since 1971 the employment in the Netherlands has continuously decreased. Apart from the decrease caused by the recent depression, particularly in the year 1975, the decrease is a more pronounced continuation of a tendency which is manifest already in a number of years before. In this paper an attempt is made to explain the structural development of employment by means of a clay-clay vintage model. It appears that the unfavourable development of employment is connected with the accelerated growth of real labour costs in the past decade.
This paper deals with some problems of international factor mobility with respect to labor using the case of the German labor market. A quarterly macroeconometric model of the German labor market is developed and estimated. It consists of equations explaining labor supply and demand for men and women. Most equations distinguish between labor measured in persons and hours. After a determination of the variables of this model which are influenced by foreign employment two groups of foreign workers which differ according to their EC-member status are discussed separately. Because of several legal and institutional regulations a different treatment of each group with respect to employment policy is necessary. For foreigners from outside the EC alternative reaction functions of the government are discussed and estimated. As the officially published unemployment rate is not comparable intertemporally because of foreign involuntary remigration during recession a new unemployment series including these persons is constructed and explained. The influence of foreign employment on wages is examined and two wage equations are estimated. Finally, some simulation results of an enforced remigration policy are reported.
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