Modeling Wage Expectations and Long-Memory Dynamics in the German Labor Market, 1914–1920

Boughabi, Houssam (2025): Modeling Wage Expectations and Long-Memory Dynamics in the German Labor Market, 1914–1920. Published in: Journal of Business and Econometrics Studies , Vol. 2, No. 3 (13 May 2025): pp. 1-5.

Abstract

This study simulates the labor market dynamics in Germany during 1914-1920, focusing on the impact of World War I on wage expectations and economic stability. Built upon the historical context of the period, the simulation takes into account the initial wage hikes driven by involuntary unemployment and the exodus of workers from civilian industries to war-related industries. It then explores the subsequent stabilization of wages, as observed in the empirical reality of the era. Using simulated data, the paper examines how workers' expectations of future wages were shaped by current wage conditions amidst the economic strain caused by the war. The study also investigates the role of national unity, government policies, and institutional frameworks in preserving wage stability during market volatility. To analyze wage dynamics, the research applies a dynamic wage model alongside the FIGARCH(1,d,1) model, estimating long-memory effects in wage volatility. The findings suggest that past economic conditions played a significant role in shaping current wage expectations, with light long-memory properties observed in wage volatility. This simulated analysis offers insights into how economic pressures and government interventions during wartime may have contributed to wage stability, shaping the uncertainty of workers into forecasting the war ending which goes in accordance with the martingale hypothesis of wages expectations. Our study is contextual and qualitative and discusses the properties of economical series based on the context of the period.

• Item Type: MPRA Paper
• Language: English
• Keywords: Wage Volatility, Long Memory Processes, Labor Market Dynamics, Economic History
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E24 - Employment ; Unemployment ; Wages ; Intergenerational Income Distribution ; Aggregate Human Capital ; Aggregate Labor Productivity; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials; N - Economic History > N3 - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy > N34 - Europe: 1913-

References

Baillie, R. T., Bollerslev, T., & Mikkelsen, H. O. (1996). Fractionally Integrated Generalized Autoregressive Conditional Heteroskedasticity. Journal of Econometrics, 74(1), 3–30.

Beran, J. (1994). Statistics for Long-Memory Processes. Chapman & Hall.

Blanchard, O. J., & Katz, L. F. (1992). Regional Evolutions. Brookings Papers on Economic Activity, 1, 1–61.

Blanchard, O. J., & Summers, L. H. (1986). Hysteresis and the European Unemployment Problem. NBER Macroeconomics Annual, 1, 15–90.

Boughabi, H., & El Qalli, Y. (2023). War times with a reversed labour market under a fractional Stock Market. Preprint (Version 1), Research Square. Available at: https://doi.org/10.21203/rs.3.rs-3064763/v1

Caporale, G. M., Gil-Alana, L. A., & Lovcha, Y. (2016). Testing Unemployment Theories: A Multivariate Long Memory Approach. Journal of Applied Economics, 19(1), 95–112.

Caporale, G. M., Gil-Alana, L. A., & Plastun, A. (2016). Long Memory in the Spanish Stock Market. Research in International Business and Finance, 37, 435–447.

Diebold, F. X., & Rudebusch, G. D. (1989). Long Memory and Persistence in Aggregate Output. Journal of Monetary Economics, 24(2), 189–209.

Falter, J. W. (1991). Hitler's voters. Harvard University Press.

Bry, G. (1960). Wages in Germany, 1871–1945: A Study by the National Bureau of Economic Research. Princeton University Press.

Gil-Alana, L. A. (2003). Testing of Fractional Integration and Structural Breaks at a Time Trend. Journal of Time Series Analysis, 24(6), 629–654.

Gil-Alana, L. A., Ozdemir, Z. A., & Tansel, A. (2017). Long Memory in Turkish Unemployment Rates. IZA Discussion Paper No. 11053, Institute of Labor Economics (IZA).

Hosking, J. R. M. (1981). Fractional differencing. Biometrika, 68(1), 165–176.

Lobato, I. N., & Savin, N. E. (1998). Real and Spurious Long-Memory Properties of Stock-Market Data. Journal of Business & Economic Statistics, 16(3), 261–268.

Gil-Alana, L. A. (2003). Unemployment and Real Oil Prices in Australia: A Fractionally Cointegrated Approach. Applied Economics Letters, 10(4), 201–204.