History dependence in wages and cyclical selection: Evidence from Germany

Anja Bauer and Benjamin Lochner

No 05/2019, FAU Discussion Papers in Economics from Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics

Abstract: 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.

Keywords: Business Cycle; Wage; Wage Rigidity; Implicit Contracts; Match Quality (search for similar items in EconPapers)
JEL-codes: E24 E32 J31 J41 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-eur, nep-hrm, nep-lma and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: History dependence in wages and cyclical selection: Evidence from Germany (2020)
Working Paper: History dependence in wages and cyclical selection: evidence from Germany (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwqwdp:052019

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