Germany - Relation between wages and labour market conditions - October 31, 2016

Using administrative data, an IAB-paper analyses the relation between wages and past and current labour market conditions. The data suggests that wages are related to past labour market conditions as contract theories postulate. However, past labour market conditions also affect contemporaneous wages through the evolution of the match qualities over a worker’s job history - the main hypothesis of the selection model. Refining the selection model by taking into account within company job regrading, the authors find that wages of workers who switched employers and occupations at the same time respond stronger to the cycle than wages of job stayers. In contrast, wages of workers who only switch employers or occupations are not more cyclical than wages of workers who stay at their previous employer and in their previous occupation. 

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