Abstract

This paper analyzes the consequences of a labor supply shock for the German apprenticeship market. The shock was induced by a schooling reform through which the number of high school graduates applying for an apprentice position reduced dramatically in two states. Exploiting variation over time and states, the analyses show how this decline in supply affected wages and longer term employment evolution of the affected cohort. The results reveal that there were no wage increases involved with the negative supply shock. The affected cohort did also possess worse labor market outcomes in the longer run that did not diminish within three years after apprenticeship graduation. Further analyses suggest that both findings can be explained by a negative selection effect that stems from the supply shock itself.