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History dependence in wages and cyclical selection: Evidence from Germany

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  • Bauer, Anja
  • Lochner, Benjamin

Abstract

Using administrative employer-employee data from Germany, we investigate the behavior of individual wages over the business cycle. We present evidence that both contractual wage arrangements and cyclical match quality are a key feature of the German labor market. We show that parts of the excess wage cyclicality of new hires discussed by the literature can be explained by cyclical job ladder movements in match quality of new hires from employment. Guided by the literature of job reassignments, we additionally allow for variation in the match quality within an employer-employee match. Besides support for job-specific contracts, our novel main results show that much of the excess wage cyclicality of job changers can be explained by occupation switching workers.

Suggested Citation

  • Bauer, Anja & Lochner, Benjamin, 2020. "History dependence in wages and cyclical selection: Evidence from Germany," Labour Economics, Elsevier, vol. 67(C).
  • Handle: RePEc:eee:labeco:v:67:y:2020:i:c:s0927537120301366
    DOI: 10.1016/j.labeco.2020.101932
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    Cited by:

    1. Merkl, Christian & Stüber, Heiko, 2016. "Wage cyclicalities and labor market dynamics at the establishment level: Theory and evidence," FAU Discussion Papers in Economics 12/2016, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    2. Lochner, Benjamin & Schulz, Bastian, 2020. "Firm productivity, wages, and sorting," IAB-Discussion Paper 202004, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    3. Grass, Karen & Weber, Enzo, 2016. "EU 4.0 - Die Debatte zu Digitalisierung und Arbeitsmarkt in Europa," IAB-Discussion Paper 201639, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    4. Lydon, Reamonn & Lozej, Matija, 2018. "Flexibility of new hires’ earnings in Ireland," Labour Economics, Elsevier, vol. 53(C), pages 112-127.
    5. repec:iab:iabdpa:201639(en is not listed on IDEAS

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    More about this item

    Keywords

    Business cycle; Wage; Wage rigidity; Implicit contracts; Match quality;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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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