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Deutsche Forschungsgemeinschaft

Wages, Heterogeneities, and Labor Market Dynamics

Job and Worker Flows: New Stylized Facts for Germany

Rüdiger Bachmann, Christian Bayer, Christian Merkl, Stefan Setz, Heiko Stüber and Felix Wellschmied

FAU Discussion Papers in Economics, No. 02/2017

Abstract: We study the relationship between cyclical job and worker flows at the establishment level using the new German AWFP dataset spanning from 1975-2014. We find that worker churn takes place along the entire employment growth distribution of establishments. We show that these procyclical conditional worker flows result almost exclusively from job-to-job transitions. Growing establishments fuel their employment growth by poaching workers from other establishments as the boom matures. At the same time, non-growing establishments replace these workers by hiring from other establishments and non-employment.

The real wage cyclicality of newly hired and in-cumbent workers in Germany

Heiko Stüber

The Economic Journal, Online First, p. 35

Abstract: Several recent macroeconomic models assume that real wages are rigid. The wage rigidity of newly hired workers assumes a crucial role in these models, as the decision of whether to open a vacancy is primarily influenced by real hiring wages. This article analyses the cyclical behaviour of real wages in Germany. It considers recent concerns that not controlling for cyclical job up and downgrading leads to biased results. The results indicate that wages are not rigid – neither for all workers nor for newly hired workers – but instead respond considerably to business cycle conditions.

Wage Cyclicalities and Labor Market Dynamics at the Establishment Level: Theory and Evidence

Christian Merkl and Heiko Stüber

FAU Discussion Papers in Economics, No. 12/2016

Abstract: This paper analyzes the effects of different wage cyclicalities on labor market flow dynamics at the establishment level. We derive a model that allows for heterogeneous wage cyclicalities across firms over the business cycle and confront the theoretical results with the new AWFP dataset, which comprises the entire universe of German establishments. In line with theory, establishments with more procyclical wage movements over the business cycle have a more countercyclical hires rate and employment behavior. This result is robust when we look at certain sectors and states. Wage cyclicalities do not only have the expected qualitative impact on stocks and flows, but the quantitative responses are also in line with the proposed model. More generally, our empirical results provide support for theories that lead to an effect of wage rigidities on labor market flow dynamics.

Value Added, Wages, and Labor Market Flows at the Establishment Level

Christian Merkl and Heiko Stüber

FAU Discussion Papers in Economics, No. 03/2017

Abstract: In this paper, we analyze the connection between value added, wages, and labor market flows at the establishment level. For this purpose, we first develop a simple model to illustrate the expected comovement of these variables. For the empirical analysis, we link the new German Administrative Wage and Labor Market Flow Panel (AWFP) dataset to the IAB Establishment Panel survey. We show that establishments’ hires rates have a positive and separations rates a negative comovement with establishment-specific value added, whereby hires react by more than separations. Our estimation results point towards inefficient separation behavior in some parts of the economy. In addition, we provide evidence that establishments’ partial equilibrium reaction is an important driver for aggregate labor market dynamics.

Efficiency and Labor Market Dynamics in a Model of Labor Selection 

Christian Merkl and Sanjay Chugh

International Economic Review, Issue 4, p. 1371–1404

Abstract: This article characterizes efficient labor market allocations in a labor selection model. The model’s crucial aspect is cross-sectional heterogeneity for new job contacts, which leads to an endogenous selection threshold for new hires. With cross-sectional dispersion calibrated to microeconomic data, 40% of empirically relevant fluctuations in the job-finding rate arise, which contrasts with results in an efficient search and matching economy. The efficient selection model’s results hold in partial and general equilibrium, as well as with sequential search.

Revisiting the Matching Function

Britta Kohlberecher, Christian Merkl and Daniela Nordmeier

Journal of Economic Dynamics and Control (2016), S. 350-374

Abstract: There is strong empirical evidence for Cobb–Douglas matching functions. We show in this paper that this widely found relation between matches on the one hand and unemployment and vacancies on the other hand can be the result of different underlying mechanisms. Obviously, it can be generated by assuming a Cobb–Douglas matching function. Less obvious, the same relationship results from a vacancy free-entry condition and idiosyncratic productivity shocks. A positive aggregate productivity shock leads to more vacancy posting, a shift of the idiosyncratic selection cutoff and thereby more hiring. We calibrate a model with both mechanisms to administrative German labor market data and show that idiosyncratic productivity for new contacts is an important driver of the elasticity of the job-finding rate with respect to the market tightness. Accounting for idiosyncratic productivity can explain the observed negative time trend in estimated matching efficiency and asymmetric business cycle responses to large aggregate shocks.

Bias in Returns to Tenure When Firm Wages and Employment Comove: A Quantitative Assessment and Solution

Pedro Martins, Andy Snell, Heiko Stüber and Jonathan Thomas

Journal of Labor Economics

Abstract: It is well known that, unless worker-firm match quality is controlled for, returns to firm tenure (RTT) estimated directly via reduced form wage (Mincer) equations will be biased. In this paper we argue that even if match quality is properly controlled for there is a further pervasive source of bias, namely the co-movement of firm employment and firm wages. In a simple mechanical model where human capital is absent and separation is exogenous we show that positively covarying shocks (either aggregate or firm level) to firm’s employment and wages cause downward bias in OLS regression estimates of RTT. We show that the long established procedures for dealing with „traditional“ RTT bias do not circumvent the additional problem we have identified. We argue that if a reduced form estimation of RTT is undertaken, firm-year fixed effects must be added in order to eliminate this bias. Estimates from two large panel datasets from Portugal and Germany show that the bias is empirically important. Adding firm-year fixed effects to the regression increases estimates of RTT in the two respective countries by between 3.5% and 4.5% of wages at 20 years of tenure — over 80% (50%) of the estimated RTT level itself. The results extend to tenure correlates used in macroeconomics such as the minimum unemployment rate since joining the firm. Adding firm-year fixed effects changes estimates of these estimates also.

Administrative Wage and Labor Market Flow Panel (AWFP) 1975–2014

Stefan Seth and Heiko Stüber

FAU Discussion Papers in Economics, No. 01/2017

Abstract: This paper describes the new Administrative Wage and Labor Market Flow Panel (AWFP). The AWFP is a dataset on labor market flows and stocks for the universe of German establishments. It contains data on job flows, worker flows, and about wages for each establishment. The AWFP contains this information also for partitions of the labor force according to various employee characteristics and for some subgroups of employees. The AWFP covers the time period 1975-2014. All data are available at an annual and quarterly frequency.