Skill Wage Premia, Employment, and Cohort Effects: Are Workers in Germany All of the Same Type?

51 Pages Posted: 13 Jul 2006

See all articles by Bernd Fitzenberger

Bernd Fitzenberger

Humboldt University of Berlin - School of Business and Economics

Karsten Kohn

Kreditanstalt für Wiederaufbau (KfW), KfW Development Bank; IZA Institute of Labor Economics

Date Written: June 2006

Abstract

This paper studies the relationship between employment and wage structures in West Germany based on the IAB employment subsample 1975-1997. It extends the analytical framework of Card and Lemieux (2001) which simultaneously includes skill and age as important dimensions of heterogeneity. After having identified cohort effects in skill wage premia and in the evolution of relative employment measures, we estimate elasticities of substitution between employees in three different skill groups and between those of different age, taking account of the endogeneity of wages and employment. Compared to estimates in the related literature, we find a rather high degree of substitutability. Drawing on the estimated parameters, we simulate the magnitude of wage changes within the respective skill groups that would have been necessary to halve skill-specific unemployment rates in 1997. The required nominal wage reductions range from 8.8 to 12.2% and are the higher the lower the employees' skill level.

Keywords: Labor Demand, Heterogeneity, Age, Skill, Wage Structure, Employment, Cohort Effects, Unemployment

JEL Classification: J21, J31, E24

Suggested Citation

Fitzenberger, Bernd and Kohn, Karsten, Skill Wage Premia, Employment, and Cohort Effects: Are Workers in Germany All of the Same Type? (June 2006). IZA Discussion Paper No. 2185, ZEW Discussion Paper No. 06-044, Available at SSRN: https://ssrn.com/abstract=913946

Bernd Fitzenberger (Contact Author)

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

Karsten Kohn

Kreditanstalt für Wiederaufbau (KfW), KfW Development Bank ( email )

Palmengartenstr. 5-9
Frankfurt, 60325
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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