ON• EI.SEV1ER Economics Letters 51 (1996) 345-353 economics letters Wage curve evidence from panel data Bernt Bratsberg a'*, Jarkko Turunen b aKansas State University, Waters Hall, Manhattan, KS 66506, USA bUniversity of Joensuu, Joensuu, Finland Received 14 June 1995; accepted 6 February 1996 Abstract We examine the US wage curve using longitudinal micro data. Results support the wage curve, but are sensitive to inclusion of regional and/or personal fixed effects. We find that hourly wages are less responsive to local unemployment than annual earnings. Keywords: Wage curve; Local unemployment JEL classification: J31; J64 I. Introduction In recent contributions to the literature, Blanchflower and Oswald (1990, 1994a,b, 1995) profess to have uncovered an empirical law of economics- the wage curve. The wage curve describes a fundamental negative relationship between a worker's pay and the unemployment rate in the local labor market. This negative association contradicts traditional thinking on the wage-unemployment relationship, that wages and unemployment should be positively correlated across regions (Harris and Todaro, 1970; Hall, 1970, 1972). The importance of the wage curve is emphasized by Card (1995), who states that "[Blanchflower and Oswald may] have isolated the missing link that has long evaded macro modelers: a relatively elastic quasi-supply function that can be combined with a simple labor demand function to construct a model of the aggregate labor market." The empirical foundation of the wage curve is a Mincerian wage regression augmented with the unemployment rate in the worker's local labor market. A number of recent studies document the existence of the wage curve in micro data sets from several countries (Blanchflower and Oswald, 1995; Card, 1995; Groot et al., 1992; Wagner, 1994). The present study explores the US wage curve for young workers, drawing on data from the National * Corresponding author. Tel.: 913 532-4572; fax: 913 532-6919; e-mail: bernt@ksu.ksu.edu. 0165-1765/96/$12.00 © 1996 Elsevier Science S.A. All rights reserved PII S0165-1765(96)00818-X