Albert Jan’s presentation is an adaptation of his bachelor thesis defended at the University of Groningen this year. Supervisor was professor Paul Elhorst at the University of Groningen. The NARSC conference will be organized in Atlanta from November 13 – 16, 2013.
Abstract thesis
We provide empirical evidence for the existence of a labour productivity induced wage curve. Rather than adding the regional unemployment rate as an individual regressor to the wage equation, we employ a search-theoretic model to derive separate specifications for both the equilibrium level of pay and the equilibrium rate of joblessness at the regional level. Using data on U.S. Metropolitan Statistical Areas (MSAs), we then show that regional variation in labour productivity is a key determinant in explaining the observed, negative relationship between wages and unemployment rates. This interpretation of the wage curve should be considered a serious alternative to the explanations that have thus far dominated scholarly thinking on the topic.