The impact of declining youth employment stability on future wages

Has the early career become less stable during the 1980s and 1990s? And does a lack of early-career employment stability inhibit wage growth? I analyze exceptionally rich administrative data on male graduates from Germany’s dual education system to shed more light on these important questions. The data indicate a decline in youth employment durations since the late 1970s, limited to already relatively short durations. Controlling for endogeneity of employment in youth with training firm fixed effects and by exploiting institutional variation in the timing of nationwide macroeconomic shocks, I find significant returns to early-career employment stability in terms of higher wages in adulthood. These returns decline not only across the wage distribution, but also with cohort age. The findings suggest less stable employment in the early years of a career to have become increasingly costly during the 1990s for the least advantaged workers.