Wage Flexibility and Employment Performance: A Microdata Analysis of Different Age-Education Groups for Germany

Publication Type

Working paper

Authors

Beissinger, Thomas and Möller, Joachim

Year of publication

1998

Published in

Regensburger Diskussionsbeiträge

The paper analyses the hypothesis that structural unemployment in Germany has risen because rigid relative wages hindered the necessary adjustments in the face of a substantial shift in demand against the unskilled. Observing that the descriptive evidence is inconclusive, we develop a theoretical framework with imperfect competition on the labor market that enables us to investigate the wage and employment dynamics for narrowly defined age-by-education-by-industry cells. Using a large micro data set, we present SUR cross-section estimates of the employment and wage equations derived from this model. Our results indicate that wages of male workers did respond to relative labor demand shifts, and this reaction was strong enough to prevent corresponding changes in the employment structure. For female workers, however, the
evidence is more supportive to a rigidity explanation of their poor labor market performance.