Firm Dynamics and Employment Outcomes

In a market economy, firm foundations and closures are important drivers of resource (re)allocation, structural change, and economic development which is particularly important with respect to the economic transformation of East Germany from a state-directed to a market economy. At the same time, job displacement coming along with structural change may have serious consequences for affected employees, such as unemployment, earnings losses, or lower job quality in a new job. This research group uses microeconometric methods to analyze foundation, evolution, and failure of firms, the amount and quality of jobs created by new firms and the consequences of firm closures for employees, in particular in terms of labor market outcomes such as employment and wages.

Research Cluster
Productivity and Institutions

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Dr André Diegmann
Dr André Diegmann
Mitglied - Department Structural Change and Productivity
Send Message +49 345 7753-873 Personal page


01.2020 ‐ 12.2023

The Rise of Populist Parties in Europe: The Dark Side of Globalization and Technological Change?


Globalisation may have increased prosperity in general, but has also led to unemployment, wage inequality, outward migration and, thus, ageing populations in many European regions. This project examines whether these economic burdens lead to votes for populist parties.

see project's webpage

Professor Dr Steffen Müller

01.2019 ‐ 06.2022

MICROPROD („Raising EU Productivity: Lessons from Improved Micro Data“)

European Commission

The goal of MICROPROD is to contribute to a greater understanding of the challenges brought about in Europe by the fourth industrial revolution and the associated ‘productivity puzzle’ in a context of globalisation and digitisation, and to provide alternative policy options to better address these challenges.

see project's webpage

This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 764810.

Professor Dr Steffen Müller

07.2018 ‐ 12.2020

Firm Wage Differentials in Imperfect Labour Markets: The Role of Market Power and Industrial Relations in Rent Splitting between Workers and Firms

German Research Foundation (DFG)

The main purpose of this proposal is to grasp a firmer understanding of how employment rents are split between workers and employers in imperfect labour markets and how labour market institutions, such as unions and works councils, influence the distribution of rents. In that it not only promises new insights into the wage formation process and the likely consequences of important labour market trends like falling unionisation and worker codetermination, but also promises to inform important public policy debates, such as which rights should be granted to organised labour.

see project's page on DFG website

Professor Dr Steffen Müller

02.2019 ‐ 09.2019

Evaluation of the IAB Establishment Panel 2018 and Preparation of a Results Report for West and East Germany

Final report: Fehlende Fachkräfte in Deutschland – Unterschiede in den Betrieben und mögliche Erklärungsfaktoren: Ergebnisse aus dem IAB-Betriebspanel 2018. IAB-Forschungsbericht 10/2019. (in German, English abstract available)

Dr Eva Dettmann

04.2016 ‐ 03.2019

Wage and Employment Effects of Bankruptcies

German Research Foundation (DFG)

The project analyzes the process and the consequences of firm failure. For the first time, evidence on the consequences of small firms’ bankruptcy on employees’ earnings and wages is provided. The project e.g. shows that employees of small firms are more likely to see their employer failing but, at the same time, face smaller earnings and wage losses than employees displaced from larger firms. Check the below research articles for further insights.

Overview of project results (in German)     Project website

Dr Daniel Fackler
Professor Dr Steffen Müller
Dr Jens Stegmaier

01.2018 ‐ 12.2018

Evaluation of the IAB Establishment Panel 2017 and Preparation of a Results Report for West and East Germany

Final report: Lohnunterschiede zwischen Betrieben in Ost- und Westdeutschland: Ausmaß und mögliche Erklärungsfaktoren. Ergebnisse aus dem IAB-Betriebspanel 2017. IAB-Forschungsbericht 6/2018. (in German, English abstract available)

Professor Dr Steffen Müller

01.2017 ‐ 09.2017

Evaluation of the IAB Establishment Panel 2016 and Preparation of a Results Report for West and East Germany

Final report: Produktivitätsunterschiede zwischen West- und Ostdeutschland und mögliche Erklärungsfaktoren. Ergebnisse aus dem IAB-Betriebspanel 2016. IAB-Forschungsbericht 16/2017. (in German, English abstract available)

Professor Dr Steffen Müller

Refereed Publications


Unions as Insurance: Workplace Unionization and Workers' Outcomes During COVID-19

Nils Braakmann Boris Hirsch

in: Industrial Relations: A Journal of Economy and Society, forthcoming


<h3>Abstract We investigate to what extent workplace unionization protects workers from external shocks by preventing involuntary job separations. Using the COVID-19 pandemic as a plausibly exogenous shock hitting the whole economy, we compare workers who worked in unionized and non-unionized workplaces directly before the pandemic in a difference-in-differences framework. We find that unionized workers were substantially more likely to remain working for their pre-COVID employer and to be in employment. This greater employment stability was not traded off against lower working hours or labor income.</h3>

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Exposure to Conflict, Migrations and Long-run Education and Income Inequality: Evidence from Bosnia and Herzegovina

Adnan Efendic Dejan Kovač Jacob N. Shapiro

in: Defence and Peace Economics, forthcoming


We investigate the long-term relationship between conflict-related migration and individual socioeconomic inequality. Looking at the post-conflict environment of Bosnia and Herzegovina (BiH), a former Yugoslav state most heavily impacted by the wars of the early 1990s, the paper focuses on differences in educational performance and income between four groups: migrants, internally displaced persons, former external migrants, and those who did not move. The analysis leverages a municipality-representative survey (n&nbsp;≈&nbsp;6,000) that captured self-reported education and income outcomes as well as migration histories. We find that individuals with greater exposure to conflict had systematically worse educational performance and lower earnings two decades after the war. Former external migrants now living in BiH have better educational and economic outcomes than those who did not migrate, but these advantages are smaller for external migrants who were forced to move. We recommend that policies intended to address migration-related discrepancies should be targeted on the basis of individual and family experiences caused by conflict.

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Industry Mix, Local Labor Markets, and the Incidence of Trade Shocks

Steffen Müller Jens Stegmaier Moises Yi

in: Journal of Labor Economics, forthcoming


We analyze how skill transferability and the local industry mix affect the adjustment costs of workers hit by a trade shock. Using German administrative data and novel measures of economic distance we construct an index of labor market absorptiveness that captures the degree to which workers from a particular industry are able to reallocate into other jobs. Among manufacturing workers, we find that the earnings loss associated with increased import exposure is much higher for those who live in the least absorptive regions. We conclude that the local industry composition plays an important role in the adjustment processes of workers.

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Can Mentoring Alleviate Family Disadvantage in Adolescence? A Field Experiment to Improve Labor-Market Prospects

Sven Resnjanskij Jens Ruhose Simon Wiederhold Ludger Woessmann Katharina Wedel

in: Journal of Political Economy, forthcoming


We study a mentoring program that aims to improve the labor-market prospects of school-attending adolescents from disadvantaged families by offering them a university-student mentor. Our RCT investigates program effectiveness on three outcome dimensions that are highly predictive of later labor-market success: math grades, patience/social skills, and labor-market orientation. For low-SES adolescents, the mentoring increases a combined index of the outcomes by over half a standard deviation after one year, with significant increases in each dimension. Part of the treatment effect is mediated by establishing mentors as attachment figures who provide guidance for the future. Effects on grades and labor-market orientation, but not on patience/social skills, persist three years after program start. By that time, the mentoring also improves early realizations of school-to-work transitions for low-SES adolescents. The mentoring is not effective for higher-SES adolescents. The results show that substituting lacking family support by other adults can help disadvantaged children at adolescent age.

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Preferred Field of Study and Academic Performance

Francesco Berlingieri André Diegmann Maresa Sprietsma

in: Economics of Education Review, August 2023


This paper investigates the impact of studying the first-choice university subject on dropout and switching field of study for a cohort of students in Germany. Using detailed survey data, and employing an instrumental variable strategy based on variation in the local field of study availability, we provide evidence that students who are not enrolled in their preferred field of study are more likely to change their field, delay graduation and drop out of university. The estimated impact on dropout is particularly strong among students of low socio-economic status and is likely to be driven by lower effort and motivation.

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Working Papers


Safety Net or Helping Hand? The Effect of Job Search Assistance and Compensation on Displaced Workers

Daniel Fackler Jens Stegmaier Richard Upward

in: IWH Discussion Papers, No. 18, 2023


We provide the first systematic evidence on the effectiveness of a contested policy in Germany to help displaced workers. So-called “transfer companies” (<i>Transfergesellschaften</i>) 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.

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Committing to Grow: Privatizations and Firm Dynamics in East Germany

Ufuk Akcigit Harun Alp André Diegmann Nicolas Serrano-Velarde

in: IWH Discussion Papers, No. 17, 2023


This paper investigates a unique policy designed to maintain employment during the privatization of East German firms after the fall of the Iron Curtain. The policy required new owners of the firms to commit to employment targets, with penalties for non-compliance. Using a dynamic model, we highlight three channels through which employment targets impact firms: distorted employment decisions, increased productivity, and higher exit rates. Our empirical analysis, using a novel dataset and instrumental variable approach, confirms these findings. We estimate a 22% points higher annual employment growth rate, a 14% points higher annual productivity growth, and a 3.6% points higher probability of exit for firms with binding employment targets. Our calibrated model further demonstrates that without these targets, aggregate employment would have been 15% lower after 10 years. Additionally, an alternative policy of productivity investment subsidies proved costly and less effective in the short term.

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Why Is the Roy-Borjas Model Unable to Predict International Migrant Selection on Education? Evidence from Urban and Rural Mexico

Stefan Leopold Jens Ruhose Simon Wiederhold

in: IWH Discussion Papers, No. 16, 2023


The Roy-Borjas model predicts that international migrants are less educated than nonmigrants because the returns to education are generally higher in developing (migrant-sending) than in developed (migrant-receiving) countries. However, empirical evidence often shows the opposite. Using the case of Mexico-U.S. migration, we show that this inconsistency between predictions and empirical evidence can be resolved when the human capital of migrants is assessed using a two-dimensional measure of occupational skills rather than by educational attainment. Thus, focusing on a single skill dimension when investigating migrant selection can lead to misleading conclusions about the underlying economic incentives and behavioral models of migration.

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Do Role Models Matter in Large Classes? New Evidence on Gender Match Effects in Higher Education

Stephan Maurer Guido Schwerdt Simon Wiederhold

in: IWH Discussion Papers, No. 14, 2023


It is well established that female students perform better when taught by female professors. However, little is known about the mechanisms explaining these gender match effects. Using administrative records from a German public university, which cover all programs and courses between 2006 and 2018, we show that gender match effects are sizable in smaller classes, but are absent in larger classes. These results suggest that direct and frequent interactions between students and professors are crucial for gender match effects to emerge. In contrast, the mere fact that one’s professor is female is not sufficient to increase performance of female students.

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Where Do STEM Graduates Stem from? The Intergenerational Transmission of Comparative Skill Advantages

Eric A. Hanushek Babs Jacobs Guido Schwerdt Rolf van der Velden Stan Vermeulen Simon Wiederhold

in: IWH Discussion Papers, No. 13, 2023


The standard economic model of occupational choice following a basic Roy model emphasizes individual selection and comparative advantage, but the sources of comparative advantage are not well understood. We employ a unique combination of Dutch survey and registry data that links math and language skills across generations and permits analysis of the intergenerational transmission of comparative skill advantages. Exploiting within-family between-subject variation in skills, we show that comparative advantages in math of parents are significantly linked to those of their children. A causal interpretation follows from a novel IV estimation that isolates variation in parent skill advantages due to their teacher and classroom peer quality. Finally, we show the strong influence of family skill transmission on children’s choices of STEM fields.

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