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Globalisation, wage adjustment, and unemployment: An empirical analysis based on the factor price frontier

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  • Hornung, Dietmar
  • Schimmelpfennig, Axel
  • Wapler, Rüdiger

Abstract

We investigate the effects of globalisation on the labour market using the factor price frontier. The factor price frontier defines a negative relationship between the real rate of return and the real wage rate. As international capital mobility equalises the real rate of return in all economies, real wages also have to converge. If they do not adjust, unemployment and technical change will result in relatively capitalabundant countries. We estimate the factor price frontier for the United States and for Germany with the Johansen procedure. While the U. S. economy adjusts along a single factor price frontier throughout the sample, there are three distinct frontiers in the German case. The outward shifts of the factor price frontier coincide with significant hikes in unemployment.

Suggested Citation

  • Hornung, Dietmar & Schimmelpfennig, Axel & Wapler, Rüdiger, 1997. "Globalisation, wage adjustment, and unemployment: An empirical analysis based on the factor price frontier," Kiel Working Papers 834, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:834
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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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