Abstract

Rising wages are often understood as a reaction of firms towards a shift between labour demand and labour supply. Therefore, labour shortages may lead to an increasing probability for firms to pay higher wages than originally planned. Since firms may compensate only for anticipated shortages on the labour market, wage concessions probably turn out to be an inadequate indicator for labour shortages.

Our special feature is that we are able to observe different dimensions of labour shortages. Using more than one indicator allows us to distinguish between perceived labour shortages, experiences of unfilled vacancies, and the effective tightness of the labour market. The latter is the straightforward indicator of the reaction of occupational specific supply and demand in a West and East Germany. Our controls included firm specific characteristics such as sector affiliation, firm size, and wage discrepancy.
Generally, we may find three reasons for demand-sided concessions in wage: First, individual characteristics such as a high qualification and longer job experience may effect wage concessions. Second, firm specific situations lead to higher wages to pay than originally planned. Imaginable are firm size differences or wages paid under the market level. Third, labour shortages and difficulties in staffing make concessions – also in wage – more reasonable. We are most interested in the latter reason for wage concessions because we learn a lot of wage concession maybe a wrong indicator for labour shortages.

On the individual level, according to human capital theory the ‘match’ is determined by the qualification of the candidate on the one hand and the expected productivity of the worker on the other. To a certain degree, in this view, wages resemble the individual return of investment (education and skills) of the worker and the use of this productive capital by the employer respectively. Individual characteristics such as a high qualification or a long job experience of the candidate are reasons for higher wages. Supply-sided the firm’s size or low wages make wage concessions more reasonable. However, this return of investment is dependent on structural effects on the job market. On the one hand, high unemployment rates may lead to lower wages (strong position of the employer, fierce competition between job seekers). On the other hand, labour shortages or difficulties in staffing may lead to wages being higher than originally planned by the employer. From the perspective of human capital theory such labour shortage successes may indicate that high skilled workers benefit from offering additional prospects of productivity. But labour shortages also may enhance the position of job seekers with lower qualifications as well.

Data basis is the representative German Job Vacancy Survey. In 2015 around 13.000 firms reported their job vacancies and recruitment strategies. In addition, detailed information on the last new employee including age, gender, qualification, previous status of employment, and on the process of recruitment, such as concessions that were made and the final wage setting is available in the survey.