Wage-Induced Mismatch on German Labour Markets? Lessons from Comparison with Portugal
The German labour market performance is falling behind that of other European countries. Portugal, for instance, has decreasing unemployment rates, leading to a share of only 4.6% unemployed persons in 1998 (Germany: 9.5%). This paper sheds some light on the divergent development from a matching point of view. I present matching functions based on comparable panel data on hires, vacancies and unemployment at the occupational level for Portugal and Germany. Both countries reveal low matching elasticities with respect to unemployment. In Portugal, however, there is a strong upward trend of the matching efficiency, whereas Germany's labour market has become less flexible over time. The analysis of the reasons is eased by availability of panel data. Because of high degrees of freedom, aggregate mismatch indicators are implemented as covariates of the matching trend. It turns out that the evolution of real wages is a significant factor of mismatch in Germany. There seems to be growing mismatch because the (demanded) feasible wage of firms does not coincide with reservation wages of labour supply. Moreover, the slow expansion of the service sector and the failing reintegration of women coming from out of the labour force are obstacles of more efficient matching in Germany. In Portugal, on the other hand, the reduction of minimum wages has significantly contributed to increased matching activities.
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Volume (Year): 219 (1999)
Issue (Month): 1+2 (July)
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