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Scarce Workers, High Wages?

Author

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  • Erik-Benjamin Borschlein
  • Mario Bossler
  • Martin Popp

Abstract

Labor market tightness tremendously increased in Germany between 2012 and 2022. We analyze the effect of tightness on wages by combining social security data with unusually rich information on vacancies and job seekers. Instrumental variable regressions reveal positive elasticities between 0.004 and 0.011, implying that higher tightness explains between 7 and 19 percent of the real wage increase. We report greater elasticities for new hires, high-skilled workers, the Eastern German labor market, and the service sector. In particular, tightness raised wages at the bottom of the wage distribution, contributing to the decline in wage inequality over the last decade.

Suggested Citation

  • Erik-Benjamin Borschlein & Mario Bossler & Martin Popp, 2024. "Scarce Workers, High Wages?," Papers 2408.04508, arXiv.org, revised Nov 2024.
    • Handle: RePEc:arx:papers:2408.04508
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    References listed on IDEAS

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    1. Mario Bossler & Martin Popp, 2022. "Labor Demand on a Tight Leash," Papers 2203.05593, arXiv.org, revised Feb 2024.
    2. Bossler, Mario & Popp, Martin, 2024. "Labor Demand on a Tight Leash," IZA Discussion Papers 16837, Institute of Labor Economics (IZA).
    3. Per Kropp & Barbara Schwengler, 2016. "Three-Step Method for Delineating Functional Labour Market Regions," Regional Studies, Taylor & Francis Journals, vol. 50(3), pages 429-445, March.
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