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 ClusterProductivity and Institutions
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.
01.2019 ‐ 06.2022
MICROPROD („Raising EU Productivity: Lessons from Improved Micro Data“)
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.
This project has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 764810.
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.
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)
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.
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)
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)
Explaining Wage Losses After Job Displacement: Employer Size and Lost Firm Wage Premiums
in: Journal of the European Economic Association, No. 5, 2021
This paper investigates whether wage losses after job displacement are driven by lost firm wage premiums or worker productivity depreciations. We estimate losses in wages and firm wage premiums, the latter being measured as firm effects from a two-way fixed-effects wage decomposition. Using new German administrative data on displacements from small and large employers, we find that wage losses are to a large extent explained by losses in firm wage premiums and that premium losses are largely permanent. We show that losses strongly increase with pre-displacement employer size. This provides an explanation for large and persistent wage losses reported in previous displacement studies typically focusing on large employers, only.
Returns to ICT Skills
in: Research Policy, No. 7, 2021
How important is mastering information and communication technology (ICT) on modern labor markets? We answer this question with unique data on ICT skills tested in 19 countries. Our two instrumental-variable models exploit technologically induced variation in broadband Internet availability that gives rise to variation in ICT skills across countries and German municipalities. We find statistically and economically significant returns to ICT skills. For instance, an increase in ICT skills similar to the gap between an average-performing and a top-performing country raises earnings by about 8 percent. One mechanism driving positive returns is selection into occupations with high abstract task content.
International Emigrant Selection on Occupational Skills
in: Journal of the European Economic Association, No. 2, 2021
We present the first evidence on the role of occupational choices and acquired skills for migrant selection. Combining novel data from a representative Mexican task survey with rich individual-level worker data, we find that Mexican migrants to the United States have higher manual skills and lower cognitive skills than nonmigrants. Results hold within narrowly defined region–industry–occupation cells and for all education levels. Consistent with a Roy/Borjas-type selection model, differential returns to occupational skills between the United States and Mexico explain the selection pattern. Occupational skills are more important to capture the economic motives for migration than previously used worker characteristics.
Do Digital Information Technologies Help Unemployed Job Seekers Find a Job? Evidence from the Broadband Internet Expansion in Germany
in: European Economic Review, February 2021
This paper studies effects of the introduction of a new digital mass medium on reemployment of unemployed job seekers. We combine data on high-speed (broadband) internet availability at the local level with German individual register data. We address endogeneity by exploiting technological peculiarities that affected the roll-out of high-speed internet. The results show that high-speed internet improves reemployment rates after the first months in unemployment. This is confirmed by complementary analyses with individual survey data suggesting that internet access increases online job search and the number of job interviews after a few months in unemployment.
Firm Wage Premia, Industrial Relations, and Rent Sharing in Germany
in: ILR Review, No. 5, 2020
The authors use three distinct methods to investigate the influence of industrial relations on firm wage premia in Germany. First, ordinary least squares (OLS) regressions for the firm effects from a two-way fixed-effects decomposition of workers’ wages reveal that average premia are larger in firms bound by collective agreements and in firms with a works council, holding constant firm performance. Next, recentered influence function (RIF) regressions show that premia are less dispersed among covered firms but more dispersed among firms with a works council. Finally, in an Oaxaca–Blinder decomposition, the authors find that decreasing bargaining coverage is the only factor they consider that contributes to the marked rise in premia dispersion over time.
Safety Net or Helping Hand? The Effect of Job Search Assistance and Compensation on Displaced Workers
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.
Committing to Grow: Privatizations and Firm Dynamics in East Germany
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.
Why Is the Roy-Borjas Model Unable to Predict International Migrant Selection on Education? Evidence from Urban and Rural Mexico
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.
Do Role Models Matter in Large Classes? New Evidence on Gender Match Effects in Higher Education
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.
Where Do STEM Graduates Stem from? The Intergenerational Transmission of Comparative Skill Advantages
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.