This paper analyzes the open-economy spillover effects of labor market reforms under incomplete insurance. Using microeconomic data, we document a boost in the tradable sector in the aftermath of the German Hartz IV reform. In our model, this phenomenon can be explained by an increase in household savings due to higher precautionary savings in response to the reduction in the generosity of unemployment insurance (Hartz IV). Besides reducing unemployment in the reforming country, lower unemployment benefits generate long-run negative consumption spillovers in a monetary union, which we call the dark shadow of labor market reforms. Our model can match various German trends post Hartz IV reform, such as: i) a lasting increase in net foreign asset position, ii) short-term expansion of the tradable sector relative to the non-tradable sector, and iii) continued depreciation of the real exchange rate. By contrast, simulations of German wage moderation result in qualitatively different open-economy effects that are not in line with the empirical patterns for Germany.
Veranstaltungsreihe: Macroeconomics and Labor Markets (en)
Labor market beliefs and the gender wage gap
We study the role of labor market beliefs in the gender pay gap. We find that, on average, women expect to receive lower salaries than men and also expect to receive fewer offers when employed.
We study the role of labor market beliefs in the gender pay gap. We find that, on average, women expect to receive lower salaries than men and also expect to receive fewer offers when employed. Gender differences in expectations explain a sizable fraction of the residual gap in reservation wages. We estimate a partial equilibrium job search model that incorporates worker heterogeneity in beliefs about the wage offer distribution, arrival rates, and separation rate. Counterfactual exercises show that labor market beliefs play an important role in the gender wage gap, but matter little for the gender differences in welfare. Eliminating gender differences in the actual offer distribution, by contrast, decreases the gender gap in pay and welfare.
Equity and Efficiency of Childcare Subsidies: A Dynamic Structural Approach
Numerous governments provide income-contingent childcare subsidies.
Numerous governments provide income-contingent childcare subsidies. In this paper, we estimate the dynamic marginal efficiency cost of redistribution (MECR) associated with a large-scale program of this kind in Germany, and compare them with the MECR associated with the benchmark redistributive tool, the income tax. To do so, we integrate methods from public finance theory into a dynamic structural heterogeneous-household model of childcare demand and maternal labor supply. We also incorporate social mobility concerns into the MECR and find the MECR of the childcare subsidies to be significantly lower at the margin, suggesting that childcare subsidies are the more efficient redistributive tool.
EU enlargement and (temporary) migration: Effects on labour market outcomes in Germany
EU Eastern Enlargement elicited a rise in (temporary) labour market oriented immigration to Germany starting in May 2011. Taking into account that not all immigrants stay permanently and that outmigration flows are selective, this paper classifies recent EU immigrants into “new arrivals” and “stayers” drawing on administrative social security data (2005-2017). This novel strategy allows us to separately identify their potentially opposing short- and medium-run effects on labour market outcomes in Germany. We find a transitory negative wage effect among German nationals, particularly at the bottom of the wage distribution; and a permanent positive effect on full-time employment.
Great Recession Babies: How Are Startups Shaped by Macro Conditions at Birth?
We combine novel micro data with quasi-random timing of patent decisions over the business cycle to estimate the effects of the Great Recession on innovative startups. After purging ubiquitous selection biases and sorting effects, we find that recession startups experience better long-term outcomes in terms of employment and sales growth (both driven by lower mortality) and future inventiveness. While funding conditions cannot explain differences in outcomes, a labor market channel can: recession startups are better able to retain their founding inventors and build productive R&D teams around them.
Marriage and Divorce under Labor Market Uncertainty
This paper analyzes these “labor market divorces” in a novel model of simultaneous search in labor and marriage markets.
Married women’s greater allocation of time towards household chores and childcare suggests that an increase in their labor supply may result in reduced marital surplus and stability. This mechanism can explain persistent gender gaps in labor supply if the potential reduction is considered in decisions about reservation wages and job search efforts. An implication is that divorces may be caused by transitions into employment. This paper analyzes these “labor market divorces” in a novel model of simultaneous search in labor and marriage markets. Labor market search intensity choices depend on marital status and the partner’s type. The model matches key trends in German household survey data: declining marriage rates, increasing employment rates of married women, and a reduction of married women’s domestic time inputs. Our laboratory to quantify the role of labor market divorces is a period of rapid employment growth in Germany that started in the mid-2000s. This development in the labor market was not neutral with respect to marriage. Although more married women entering employment led to more divorces, the decrease in divorces caused by job loss among married men was greater, resulting in a net decrease in the overall divorce rate.
Matching Workers’ Skills and Firms’ Technologies: From Bundling to Unbundling
Labor and Wealth Dynamics in Equilibrium
This paper develops a macroeconomic model that combines an incomplete-markets overlapping-generations economy with a job ladder featuring strategic wage bargaining and endogenous search effort of employed and non-employed workers. The model is able to capture the empirical relationships between search activity, labor market transition, earnings and wealth that we document in German data. We use the calibrated model to analyze the determinants of job mobility, earnings and wealth dynamics over the life cycle. We further examine the impact of unemployment insurance and progressive taxation for labor market dynamics, wage inequality and macroeconomic outcomes.
Technological Change, Firm Heterogeneity and Wage Inequality
We argue that skill-biased technological change not only affects wage gaps between skill groups, but also increases wage inequality within skill groups, across workers in different firms. Building on a heterogeneous firm framework with labor market frictions, we show that an industry-wide skill-biased technological change shock will increase between-firm wage inequality within the industry through four main channels: changes in the skill wage premium (as in traditional models of technological change); increased employment concentration in more productive firms; increased wage dispersion between firms for workers of the same skill type; and increased dispersion in the skill mix that firms employ, due to more sorting of skilled workers into more productive firms. Importantly, a simultaneous increase in the supply of skilled workers does not offset the technology- induced rise in inequality. Using rich administrative matched employer-employee data from Germany, we provide empirical evidence of establishment-level adjustments that are in line with the predictions of the model. We further document that industries with more technological adoption exhibit particularly pronounced adjustment patterns along the dimensions highlighted by the model.
Bargaining in the Labor Market
This paper examines the incidence and consequences of individual wage bargaining. We collected survey data on the bargaining policies of more than 700 German firms. Using these data, we validate a new survey measure of firm bargaining policies. We then examine what drives heterogeneity in firm policies. Using the link between these data, administrative Social Security records, and a survey we fielded to 135,000 German workers, we examine the dynamics of bargaining in the labor market. In the last part of the paper we examine the implications of individual-bargaining for wage inequality. We also draw a link between individual specific pay premia and bargaining behavior.