Skill premiums and the supply of young workers in Germany

Glitz, Albrecht Christian Ekkehard, 1978-; Wissmann, Daniel

doi:http://dx.doi.org/10.1016/j.labeco.2021.102034

Skill premiums and the supply of young workers in Germany

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Glitz A, Wissmann D. Skill premiums and the supply of young workers in Germany. Labour Economics. 2021 Oct;72:102034. DOI: 10.1016/j.labeco.2021.102034

Abstract

In this paper, we study the development and underlying drivers of skill premiums in Germany between 1980 and 2008. We show that the significant increase in the medium-to-low skill premium since the late 1980s was almost exclusively concentrated among workers aged 30 or below. Using a nested CES production function framework which allows for imperfect substitutability between young and old workers, we show that changes in relative labor supplies can explain these patterns very well. A cohort-level analysis reveals that distinct secular changes in the educational attainment of the native population are the primary source of the declining relative supply of medium-skilled workers in Germany. Low-skilled immigration, in contrast, only plays a secondary role in explaining the rising lower-end wage inequality in Germany over recent decades.