History dependence in wages and cyclical selection: Evidence from Germany

Arbeitspapier

Using administrative employer-employee data from Germany, we investigate the relationship between wages and past and present labor market conditions. Furthermore, we revisit recent findings of greater wage cyclicality of new hires. Overall, we find strong evidence for history dependent wages, manifested in both hiring and retention premiums - which is consistent with a variety of contract models. Taking into account composition effects as well as cyclical variation in unobserved match quality, we find that wages of new hires from unemployment are no more cyclical, but those of job changers are more cyclical than those of existing workers. We argue that much of the excess wage cyclicality of new hires discussed by the literature can be explained by cyclical job ladder movements in match quality of new hires from employment. In a novel empirical approach, where we further take into account occupational selection, we show that if job ladder movements accompany a simultaneous change of employers and occupations, the resulting wages are particularly cyclical sensitive.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: FAU Discussion Papers in Economics ; No. 05/2019

Classification and Topics

• Classification: Wirtschaft ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Business Fluctuations; Cycles ; Wage Level and Structure; Wage Differentials ; Labor Contracts
• Subject: Business Cycle ; Wage ; Wage Rigidity ; Implicit Contracts ; Match Quality

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bauer, Anja ; Lochner, Benjamin
• Event: Veröffentlichung
• (who): Friedrich-Alexander-Universität Erlangen-Nürnberg, Institute for Economics
• (where): Nürnberg
• (when): 2019

Further information

• Handle: http://hdl.handle.net/10419/200247
• Last update: 10.03.2025, 11:44 AM CET