Unemployment and the Real Wage Gap: A Reappraisal of the German Experience

Unemployment and the Real Wage Gap: A Reappraisal of the German Experience. - The major European economies experienced a rise in unemployment since the late 1970s. At the same time, the real wage gap, a widely used measure of wage pressure, declined. This paper develops an analytical framework that relates the two phenomena. Particular emphasis is placed on the interaction of capital accumulation, wage setting and labour demand. The model is applied to the particular case of Germany and found to be consistent with the observed behaviour of wages, investment, output and employment