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Supply shocks and the factor price frontier: Labour market adjustment in the United States and Germany

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

Abstract

Based on the factor price frontier, we investigate the effects of supply shocks ort labour markets in open economies. Two different supply shocks are considered: an oil price shock, and the integration of relatively labour-abundant countries into the world economy. With flexible wages, a negative supply shock leads to a decrease in the wage rate while employment remains constant. With a rigid wage rate, a rise in unemployment of unskilled labour follows. The model explains the shift of relative labour demand towards skilled labour. The theoretical results are confirmed by our estimation of the factor price frontier for the United States and Germany.

Suggested Citation

  • Hornung, Dietmar & Schimmelpfennig, Axel & Wapler, Rüdiger, 1998. "Supply shocks and the factor price frontier: Labour market adjustment in the United States and Germany," Tübinger Diskussionsbeiträge 122, University of Tübingen, School of Business and Economics.
    • Handle: RePEc:zbw:tuedps:122
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    References listed on IDEAS

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    Cited by:

    1. Schimmelpfennig, Axel, 1998. "The celtic tiger faces the factor price frontier: Labour market adjustment in Ireland," Kiel Working Papers 855, Kiel Institute for the World Economy (IfW Kiel).

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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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