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Industrial change, stability of relative earnings, and substitution of unskilled labor in West-Germany

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  • Steiner, Viktor
  • Mohr, Robert
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    Abstract

    We analyze the dramatic decline of the employment share of unskilled labor in the West German economy, in particular its relation to the relatively rigid earnings structure. We find that the substitution elasticity between unskilled and skilled labor is rather low in most sectors of the economy. However, the substitution elasticity is relatively high for males in the construction sector and for females in personal services. In these sectors, earnings of unskilled workers have even increased relative to skilled workers in the observation period. Hence, in these sectors reductions in the relative earnings of unskilled workers could have contributed to the stabilization of their relative employment level. In other sectors of the economy, the decline in the skills ratio, i.e. the employment share of unskilled relative to skilled workers, attributable to an inflexible earnings structure seems to have been modest compared to the trend decline in the skills ratio. The skills ratio has declined by about 3% (6%) per year for men (women). This decline has been relatively uniform across sectors of the economy. Potential effects of intensified international competition and skill?biased technological change on the relative employment and earnings position of unskilled workers are also discussed. We find some modest effects from international competition and technological change on the employment share of unskilled labor in the manufacturing sector. --

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    Bibliographic Info

    Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 98-22.

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    Date of creation: 1998
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    Handle: RePEc:zbw:zewdip:5201

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    1. FitzRoy, Felix & Funke, Michael, 1995. "Capital-Skill Complementarity in West German Manufacturing," Empirical Economics, Springer, vol. 20(4), pages 651-65.
    2. David Card & Francis Kramarz & Thomas Lemieux, 1996. "Changes in the Relative Structure of Wages and Employment: A Comparison of the United States, Canada, and France," NBER Working Papers 5487, National Bureau of Economic Research, Inc.
    3. Falk, Martin & Koebel, Bertrand M., 1997. "The Demand of Heterogeneous Labour in Germany," ZEW Discussion Papers 97-28, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Katz, Lawrence F & Murphy, Kevin M, 1992. "Changes in Relative Wages, 1963-1987: Supply and Demand Factors," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 35-78, February.
    5. Katharine G. Abraham & Susan N. Houseman, 1993. "Earnings Inequality in Germany," NBER Working Papers 4541, National Bureau of Economic Research, Inc.
    6. Nickell, Stephen & Bell, Brian, 1995. "The Collapse in Demand for the Unskilled and Unemployment across the OECD," Oxford Review of Economic Policy, Oxford University Press, vol. 11(1), pages 40-62, Spring.
    7. Stephen Machin & John Van Reenen, 1998. "Technology And Changes In Skill Structure: Evidence From Seven Oecd Countries," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1215-1244, November.
    8. B Bell & Stephen Nickell, 1996. "Would Cutting Payroll Taxes on the Unskilled Have a Significant Effect on Unemployment?," CEP Discussion Papers dp0276, Centre for Economic Performance, LSE.
    9. Siebert, Horst, 1997. "Labor market rigidities and unemployment in Europe," Kiel Working Papers 787, Kiel Institute for the World Economy.
    10. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, May.
    11. E. Berman & J. Bound & S. Machin, 1997. "Implications of skill-biased technological change: international evidence," LSE Research Online Documents on Economics 20314, London School of Economics and Political Science, LSE Library.
    12. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
    13. Shadman-Mehta, Fatemeh & Sneessens, Henri R., 1995. "Skill Demand and Factor Substitution," CEPR Discussion Papers 1279, C.E.P.R. Discussion Papers.
    14. Dominique Goux & Eric Maurin, 2000. "The Decline In Demand For Unskilled Labor: An Empirical Analysis Method And Its Application To France," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 596-607, November.
    15. Fitzenberger, Bernd & Franz, Wolfgang, 1997. "Flexibilität der qualifikatorischen Lohnstruktur und Lastverteilung der Arbeitslosigkeit: Eine ökonometrische Analyse für Westdeutschland," ZEW Discussion Papers 97-32, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    16. Stephen Nickell, 1997. "Unemployment and Labor Market Rigidities: Europe versus North America," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 55-74, Summer.
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    Cited by:
    1. Köllő, János, 2001. "Hozzászólás az elmaradt minimálbérvitához
      [Contribution to an omitted debate on the minimum wage]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1064-1080.

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