[Publisher:] Deutsches Institut für Wirtschaftsforschung (DIW) [Place:] Berlin [Year:] 1992
DIW Discussion Papers 62
Regional convergence has emerged as a major topic during recent years. Several theoretical and empirical approaches have been developed which explain in what respect regions converge or diverge. Some have laid special emphasis on the role of migration. This paper applies these approaches to reach some conclusion on regional convergence. Especially wage formation is of major interest since it may turn out as a major obstacle for economic convergence. Several ways of regional wage formation are investigated, among them a füll employment wage mechanism as well as a fast regional convergence of wages which is independent of productivity movements. The conclusion is that the impact of wage mechanisms on the convergence of per capita output is ambigous. However social costs in terms of unemployment are high in case of a wage adjustment which is regardless of productivity growth.