REAL WAGE RIGIDITY IN REGIONAL LABOR MARKETS IN THE U.K., THE U.S., AND WEST GERMANY*

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Abstract
This paper examines the extent to which regional differences in wage rigidity exist and can help explain interregional differences in unemployment trends. Phillips‐curve models of manufacturing wage inflation are estimated for the 10 largest states in the U.S., the 10 economic regions in the United Kingdom, and the 11 Lände in the Federal Republic of Germany over the 1971 to 1985 period. There is evidence of significant differences in the responsiveness of wage inflation to unemployment and the rate of change in consumer prices across the regions within each country and across the three nations. An index of real wage rigidity derived from the Phillips‐curve coefficients is positively correlated with unemployment trends across the regions in our sample, suggesting that wage rigidity may be an important determinant of regional differences in labor market responses to macroeconomic shocks.