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Skill Premiums and the Supply of Young Workers in Germany

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  • Glitz, Albrecht

    () (Universitat Pompeu Fabra)

  • Wissmann, Daniel

    () (Ludwig-Maximilians-Universität München)

Abstract

In this paper, we study the development and underlying drivers of skill premiums in Germany between 1980 and 2008. We show that the significant increase in the medium to low skill wage premiums since the late 1980s was almost exclusively concentrated among the group of workers aged 30 or below. Using a nested CES production function framework which allows for imperfect substitutability between young and old workers, we investigate whether changes in relative labor supplies could explain these patterns. Our model predicts the observed differential evolution of skill premiums very well. The estimates imply an elasticity of substitution between young and old workers of about 8, between medium- and low-skilled workers of 4 and between high-skilled and medium/low-skilled workers of 1.6. Using a cohort level analysis based on Microcensus data, we find that long-term demographic changes in the educational attainment of the native (West-)German population – in particular of the post baby boomer cohorts born after 1965 – are responsible for the surprising decline in the relative supply of medium-skilled workers which caused wage inequality at the lower part of the distribution to increase in recent decades. We further show that the role of (low-skilled) migration is limited in explaining the long-term changes in relative labor supplies.

Suggested Citation

  • Glitz, Albrecht & Wissmann, Daniel, 2017. "Skill Premiums and the Supply of Young Workers in Germany," IZA Discussion Papers 10901, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp10901
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    References listed on IDEAS

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    1. repec:gam:jecnmx:v:6:y:2018:i:2:p:20-:d:140515 is not listed on IDEAS
    2. Dirk Antonczyk & Thomas DeLeire & Bernd Fitzenberger, 2018. "Polarization and Rising Wage Inequality: Comparing the U.S. and Germany," Econometrics, MDPI, Open Access Journal, vol. 6(2), pages 1-33, April.

    More about this item

    Keywords

    cohorts; baby boom; labor supply; labor demand; skill-biased technological change; wage distribution; wage differentials;

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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