[Publisher:] Deutsches Institut für Wirtschaftsforschung (DIW) [Place:] Berlin [Year:] 1996
DIW Discussion Papers No. 139
One common feature of all empirical wage curve studies is the underlying assumption that the unemployment rate is the natural indicator of labor market tightness. However, we observe that in many European countries governments spend remarkable amounts on labor market training programs. As training programs maintain the search effectiveness of the unemployed and enhance their skills, we incorporate these measures into the standard wage curve approach. Our empirical work reveals an extended wage curve in East Germany. There is a nonlinear and negative relationship between wages and job searcher rates on regional labor markets. Moreover, our estimates give first hints that labor market training programs may reduce wage pressure. Within a theoretical framework like Layard/Nickell/Jackman (1991) this implies that training programs may lower equilibrium unemployment.