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Skill Premiums and the Supply of Young Workers in Germany

Author

Listed:
  • Albrecht Glitz
  • Daniel Wissmann
Abstract
In this paper, we study the development and underlying drivers of skill premiums in Germany between 1980 and 2008. We show that the significant increase in the medium to low skill wage premiums since the late 1980s was almost exclusively concentrated among the group of workers aged 30 or below. Using a nested CES production function framework which allows for imperfect substitutability between young and old workers, we investigate whether changes in relative labor supplies could explain these patterns. Our model predicts the observed differential evolution of skill premiums very well. The estimates imply an elasticity of substitution between young and old workers of about 8, between medium- and low-skilled workers of 4 and between high-skilled and medium/low-skilled workers of 1.6. Using a cohort level analysis based on Microcensus data, we find that long-term demographic changes in the educational attainment of the native (West-)German population – in particular of the post baby boomer cohorts born after 1965 – are responsible for the surprising decline in the relative supply of medium-skilled workers which caused wage inequality at the lower part of the distribution to increase in recent decades. We further show that the role of (low-skilled) migration is limited in explaining the long-term changes in relative labor supplies.

Suggested Citation

  • Albrecht Glitz & Daniel Wissmann, 2017. "Skill Premiums and the Supply of Young Workers in Germany," CESifo Working Paper Series 6576, CESifo.
    • Handle: RePEc:ces:ceswps:_6576
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    Cited by:

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    3. Bernhard H. Wittek & Samuel Muehlemann, 2021. "The consequences of EU eastern enlargement on human capital accumulation and wages in Germany," Economics of Education Working Paper Series 0184, University of Zurich, Department of Business Administration (IBW).
    4. Knoblach, Michael, 2019. "Skill-biased technological change, endogenous labor supply, and the skill premium," CEPIE Working Papers 03/19, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    5. Gravina, Antonio Francesco & Foster-McGregor, Neil, 2020. "Automation, globalisation and relative wages: An empirical analysis of winners and losers," MERIT Working Papers 2020-040, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    6. Charlotte Bartels & Carsten Schroeder, 2020. "The role of rental income, real estate and rents for inequality in Germany," Working Papers 7, Forum New Economy.
    7. Tomas Havranek & Zuzana Irsova & Lubica Laslopova & Olesia Zeynalova, 2020. "Skilled and Unskilled Labor Are Less Substitutable than Commonly Thought," Working Papers IES 2020/29, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2020.
    8. Charlotte Bartels & Carsten Schroeder, 2020. "Income, consumption and wealth inequality in Germany: Three concepts, three stories?," Basic Papers 2, Forum New Economy.
    9. Alfred Garloff, 2019. "Did the German Minimum Wage Reform Influence (Un)employment Growth in 2015? Evidence from Regional Data," German Economic Review, Verein für Socialpolitik, vol. 20(3), pages 356-381, August.

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    More about this item

    Keywords

    cohorts; baby boom; labor supply; labor demand; skill-biased technological change; wage distribution; wage differentials;
    All these keywords.

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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