Elsevier

Labour Economics

Volume 72, October 2021, 102034
Labour Economics

Skill Premiums and the Supply of Young Workers in Germany

https://doi.org/10.1016/j.labeco.2021.102034Get rights and content
Under a Creative Commons license
open access

Highlights

  • Rising medium-to-low skill premium in Germany concentrated among young workers.

  • Young and old workers are imperfect substitutes in production.

  • Secular changes in natives’ education levels are the main driver of changes in relative supplies.

  • Low-skilled immigration plays only a secondary role for changes in relative supplies.

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 premium since the late 1980s was almost exclusively concentrated among workers aged 30 or below. Using a nested CES production function framework which allows for imperfect substitutability between young and old workers, we show that changes in relative labor supplies can explain these patterns very well. A cohort-level analysis reveals that distinct secular changes in the educational attainment of the native population are the primary source of the declining relative supply of medium-skilled workers in Germany. Low-skilled immigration, in contrast, only plays a secondary role in explaining the rising lower-end wage inequality in Germany over recent decades.

Keywords

Cohorts
Baby Boom
Labor Supply
Labor Demand
Skill-biased Technological Change
Wage Distribution
Wage Differentials

JEL classification

J110
J210
J220
J310

Cited by (0)

We thank Martin Biewen, Davide Cantoni, Christian Dustmann, Bernd Fitzenberger, Christina Gathmann, Boris Hirsch, Iourii Manovskii, Kjell Salvanes, Alexandra Spitz-Oener, Uwe Sunde, Andreas Steinmeyer, participants of the 20th BGPE Research Workshop in Passau, the ZEW Conference “Occupations, Skills, and the Labor Market” in Mannheim, the SOLE Conference 2016 in Seattle (WA), and the ESPE Conference 2016 in Berlin for valuable comments and helpful suggestions. We are also indebted to Uta Schönberg for kindly sharing programming code with us. We further thank Javier Rodriguez and Simon Bensnes for their support during project’s initial phase at the Barcelona GSE. Albrecht Glitz gratefully acknowledges financial support from the Spanish Ministry of Economy and Competitiveness (through the Severo Ochoa Programme for Centres of Excellence in R&D, SEV-2015-0563) and the Ministry of Science, Innovation and Universities (through the National Programme for the Promotion of Talent and Its Employability, the Ramón y Cajal grants, MINECO-RYC-2015-18806, and Project No. ECO2017-83668-R (AEI/FEDER, UE)). He also thanks the German Research Foundation (DFG) for funding his Heisenberg Fellowship (GL 811/1-1) and Alexandra Spitz-Oener for hosting him at Humboldt University Berlin. Daniel Wissmann acknowledges funding through the International Doctoral Program “Evidence-Based Economics” of the Elite Network of Bavaria and the LMU Forschungsfonds. This study uses the factually anonymous Sample of Integrated Labour Market Biographies (version 1975-2010). Data access was provided via a Scientific Use File supplied by the Research Data Centre (FDZ) of the German Federal Employment Agency (BA) at the Institute for Employment Research (IAB), Project No. 101003.