Organized Labor, Labor Market Imperfections, and Employer Wage Premia
Sabien Dobbelaere, Boris Hirsch, Steffen Müller, Georg Neuschäffer
ILR Review,
No. 3,
2024
Abstract
This article examines how collective bargaining through unions and workplace codetermination through works councils relate to labor market imperfections and how labor market imperfections relate to employer wage premia. Based on representative German plant data for the years 1999-2016, the authors document that 70% of employers pay wages below the marginal revenue product of labor and 30% pay wages above that level. Findings further show that the prevalence of wage markdowns is significantly smaller when organized labor is present, and that the ratio of wages to the marginal revenue product of labor is significantly larger. Finally, the authors document a close link between labor market imperfections and mean employer wage premia, that is, wage differences between employers corrected for worker sorting.
Read article
Who Benefits from Place-based Policies? Evidence from Matched Employer-Employee Data
Philipp Grunau, Florian Hoffmann, Thomas Lemieux, Mirko Titze
IWH Discussion Papers,
No. 11,
2024
Abstract
We study the wage and employment effects of a German place-based policy using a research design that exploits conditionally exogenous EU-wide rules governing the program parameters at the regional level. The place-based program subsidizes investments to create jobs with a subsidy rate that varies across labor market regions. The analysis uses matched data on the universe of establishments and their employees, establishment-level panel data on program participation, and regional scores that generate spatial discontinuities in program eligibility and generosity. These rich data enable us to study the incidence of the place-based program on different groups of individuals. We find that the program helps establishments create jobs that disproportionately benefit younger and less-educated workers. Funded establishments increase their wages but, unlike employment, wage gains do not persist in the long run. Employment effects estimated at the local area level are slightly larger than establishment-level estimates, suggesting limited spillover effects. Using subsidy rates as an instrumental variable for actual subsidies indicates that it costs approximately EUR 25,000 to create a new job in the economically disadvantaged areas targeted by the program.
Read article
27.03.2024 • 11/2024
East Germany's lead over West Germany in terms of growth is bound to shrink – Implications of the Joint Economic Forecast Spring 2024 for the East German economy
In 2023, the East German economy is expected to have expanded by 0.5%, while it shrank by 0.3% in Germany as a whole. The Halle Institute for Economic Research (IWH) forecasts an East German growth rate of 0.5% again for 2024, and a rate of 1.5% in 2025. The unemployment rate is expected to be 7.3% in 2024 and 7.1% in the following year.
Oliver Holtemöller
Read press release
Do Public Bank Guarantees Affect Labor Market Outcomes? Evidence from Individual Employment and Wages
Laura Baessler, Georg Gebhardt, Reint E. Gropp, Andre Guettler, Ahmet Taskin
IWH Discussion Papers,
No. 7,
2024
Abstract
We investigate whether employees in Germany benefit from public bank guarantees in terms of employment probability and wages. To that end, we exploit the removal of public bank guarantees in Germany in 2001 as a quasi-natural experiment. Our results show that bank guarantees lead to higher employment, but lower wage prospects for employees after working in affected establishments. Overall the results suggest that employees do not benefit from bank guarantees.
Read article
07.03.2024 • 6/2024
Germany stuck in stagnation ‒ private consumption remains below pre-pandemic levels
Weak consumption and investment in Germany are partly due to inflation-induced losses in real income and declines in energy-intensive production. However, concerns about the competitive strength of the German economy are also weighing on the willingness of private households and companies to spend. In its spring forecast, the Halle Institute for Economic Research (IWH) expects gross domestic product to expand by just 0.2% in 2024, while the forecast for 2025 includes growth of 1.5% (eastern Germany: 0.5% and 1.4%). Last December, the IWH forecast had assumed an increase of 0.5% for Germany in 2024 and of 1.2% for 2025.
Oliver Holtemöller
Read press release
The Labor Effects of Judicial Bias in Bankruptcy
Aloisio Araujo, Rafael Ferreira, Spyridon Lagaras, Flavio Moraes, Jacopo Ponticelli, Margarita Tsoutsoura
Journal of Financial Economics,
No. 2,
2023
Abstract
We study the effect of judicial bias favoring firm continuation in bankruptcy on the labor market outcomes of employees by exploiting the random assignment of cases across courts in the State of São Paulo in Brazil. Employees of firms assigned to courts that favor firm continuation are more likely to stay with their employer, but they earn, on average, lower wages three to five years after bankruptcy. We discuss several potential mechanisms that can rationalize this result, and provide evidence that imperfect information about outside options in the local labor market and adjustment costs associated with job change play an important role.
Read article
28.09.2023 • 25/2023
The downturn in 2023 is milder in East Germany than in Germany as a whole – Implications of the Joint Economic Forecast Autumn 2023 and of Länder data from recent publications of the Statistical Offices
The German economy has been in a downturn for more than a year. In East Germany, however, the economy has been somewhat stronger in the past four quarters: According to the Halle Institute for Economic Research (IWH), East German gross domestic product (GDP) is expected to increase by 0.5% in 2023, while production in Germany as a whole will fall by 0.6%. Next year, expansion rates of 1.3% are forecast in both the east and the west. For 2025, East German gross domestic product is expected to grow by 1.2%, which is slightly slower than in Germany as a whole (1.5%).
Read press release
Declining Business Dynamism in Europe: The Role of Shocks, Market Power, and Technology
Filippo Biondi, Sergio Inferrera, Matthias Mertens, Javier Miranda
IWH Discussion Papers,
No. 19,
2023
Abstract
We study changes in business dynamism in Europe after 2000 using novel micro-aggregated data that we collected for 19 European countries. In all countries, we document a broad-based decline in job reallocation rates that concerns most economic sectors and size classes. This decline is mainly driven by dynamics within sectors, size, and age classes rather than by compositional changes. Large and mature firms experience the strongest decline in job reallocation rates. Simultaneously, the employment shares of young firms decline. Consistent with US evidence, firms’ employment has become less responsive to productivity shocks. However, the dispersion of firms’ productivity shocks has decreased too. To enhance our understanding of these patterns, we derive and apply a novel firm-level framework that relates changes in firms’ sales, market power, wages, and production technology to firms’ responsiveness and job reallocation.
Read article
Declining Business Dynamism in Europe: The Role of Shocks, Market Power, and Technology
Filippo Biondi, Sergio Inferrera, Matthias Mertens, Javier Miranda
IWH-CompNet Discussion Papers,
No. 2,
2023
Abstract
We study changes in business dynamism in Europe after 2000 using novel micro-aggregated data that we collected for 19 European countries. In all countries, we document a broad-based decline in job reallocation rates that concerns most economic sectors and size classes. This decline is mainly driven by dynamics within sectors, size, and age classes rather than by compositional changes. Large and mature firms experience the strongest decline in job reallocation rates. Simultaneously, the employment shares of young firms decline. Consistent with US evidence, firms’ employment has become less responsive to productivity shocks. However, the dispersion of firms’ productivity shocks has decreased too. To enhance our understanding of these patterns, we derive and apply a novel firm-level framework that relates changes in firms’ sales, market power, wages, and production technology to firms’ responsiveness and job reallocation.
Read article
Safety Net or Helping Hand? The Effect of Job Search Assistance and Compensation on Displaced Workers
Daniel Fackler, Jens Stegmaier, Richard Upward
IWH Discussion Papers,
No. 18,
2023
Abstract
We provide the first systematic evidence on the effectiveness of a contested policy in Germany to help displaced workers. So-called “transfer companies” (Transfergesellschaften) employ displaced workers for a fixed period, during which time workers are provided with job-search assistance and are paid a wage which is a substantial fraction of their pre-displacement wage. Using rich and accurate data on workers’ employment patterns before and after displacement, we compare the earnings and employment outcomes of displaced workers who entered transfer companies with those that did not. Workers can choose whether or not to accept a position in a transfer company, and therefore we use the availability of a transfer company at the establishment level as an IV in a model of one-sided compliance. Using an event study, we find that workers who enter a transfer company have significantly worse post-displacement outcomes, but we show that this is likely to be the result of negative selection: workers who lack good outside opportunities are more likely to choose to enter the transfer company. In contrast, ITT and IV estimates indicate that the use of a transfer company has a positive and significant effect on employment rates five years after job loss, but no significant effect on earnings. In addition, the transfer company provides significant additional compensation to displaced workers in the first 12 months after job loss.
Read article