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Wage Flexibility and Contract Structure in Germany

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  • Lars Vilhuber

Abstract

In this paper, we look at how labor market conditions at different points during the tenure of individuals with firms are correlated with current earnings. Using data from the German Socioeconomic Panel on individuals for the period 1984 to 1994, we find that both the contemporaneous unemployment rate and prior values of the unemployment rate are significantly correlated with current earnings, contrary to results for the American labor market. We interpret this result as evidence that German unions do in fact bargain over both wages and employment, but that the models of individualistic contracts, such as the implicit contract model, may explain some of the observed wage drift and longer-term wage movements reasonably well. Furthermore, we explore the heterogeneity of contracts over a variety of worker and job characteristics. In particular, we find evidence that contracts differ across industries and across firm size. Workers of large firms are remarkably more insulated from the job market than workers for any other type of firm, indicating the importance of internal job markets. Dans cet article, nous analysons la corrélation des revenus de travail contemporains avec les conditions sur le marché du travail à différents moments pendant la durée du contrat. Les données que nous utilisons proviennent du Panel Socio-Économique allemand, et comprennent la période 1984-1994. Contrairement aux résultats pour le marché américain, nous trouvons que l'état actuel du marché du travail est important même en vérifiant d'après des valeurs passées du taux de chômage. Ces résultats sont cohérents avec la présence de syndicats négociant salaire et emploi simultanément. Toutefois, des modèles de contrats individuels, tels les modèles de contrats implicites, expliquent une partie de la variance de revenus de travail et des mouvements de revenu à long terme. De plus, nous étudions l'hétérogénéité des contrats selon certaines caractéristiques des travailleurs et des emplois. En particulier, nous constatons que les contrats de travail diffèrent selon le secteur d'activité et la taille de l'entreprise. Un travailleur dans une grande entreprise est remarquablement plus isolé des fluctuations du marché du travail qu'un autre oeuvrant dans une entreprise de taille moindre, ce qui suggère l'importance des marchés de travail pour ces firmes.

Suggested Citation

  • Lars Vilhuber, 1996. "Wage Flexibility and Contract Structure in Germany," CIRANO Working Papers 96s-28, CIRANO.
    • Handle: RePEc:cir:cirwor:96s-28
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    File URL: https://cirano.qc.ca/files/publications/96s-28.pdf
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    References listed on IDEAS

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    1. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    2. Fisher, Timothy C G & Martel, Jocelyn, 1999. "Should We Abolish Chapter 11? Evidence from Canada," The Journal of Legal Studies, University of Chicago Press, vol. 28(1), pages 233-257, January.
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    Cited by:

    1. Bellou, Andriana & Kaymak, Barış, 2012. "Wages, implicit contracts, and the business cycle: Evidence from a European panel," Labour Economics, Elsevier, vol. 19(6), pages 898-907.

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    More about this item

    Keywords

    Contracts; Wage Level and Structure; Employment Determination; Contrats; Niveau et structure des salaires; Mesure de l'emploi;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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