10.04.2025 • 13/2025
Joint Economic Forecast 1/2025: Geopolitical turn intensifies crisis – structural reforms even more urgent
The German economy will continue to tread water in 2025. In their spring report, the leading economic research institutes forecast an increase in gross domestic product of just 0.1% for the current year. For 2026, the institutes expect gross domestic product to increase by 1.3%. In the short term, the new US trade policy and economic policy uncertainty are weighing on the German economy. The additional scope for public debt should gradually have an expansionary effect, but threatens to crowd out private consumption and private investment.
Oliver Holtemöller
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Reservation Raises: The Aggregate Labour Supply Curve at the Extensive Margin
Preston Mui, Benjamin Schoefer
Review of Economic Studies,
No. 1,
2025
Abstract
We measure desired labour supply at the extensive (employment) margin in two representative surveys of the U.S. and German populations. We elicit reservation raises: the percent wage change that renders a given individual indifferent between employment and nonemployment. It is equal to her reservation wage divided by her actual, or potential, wage. The reservation raise distribution is the nonparametric aggregate labour supply curve. Locally, the curve exhibits large short-run elasticities above 3, consistent with business cycle evidence. For larger upward shifts, arc elasticities shrink towards 0.5, consistent with quasi-experimental evidence from tax holidays. Existing models fail to match this nonconstant, asymmetric curve.
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From Labor to Intermediates: Firm Growth, Input Substitution, and Monopsony
Matthias Mertens, Benjamin Schoefer
IWH Discussion Papers,
No. 24,
2024
Abstract
We document and dissect a new stylized fact about firm growth: the shift from labor to intermediate inputs. This shift occurs in input quantities, cost and output shares, and output elasticities. We establish this fact using German firm-level data and replicate it in administrative firm data from 11 additional countries. We also document these patterns in micro-aggregated industry data for 20 European countries (and, with respect to industry cost shares, for the US). We rationalize this novel regularity within a parsimonious model featuring (i) an elasticity of substitution between intermediates and labor that exceeds unity, and (ii) an increasing shadow price of labor relative to intermediates, due to monopsony power over labor or labor adjustment costs. The shift from labor to intermediates accounts for one half to one third of the decline in the labor share in growing firms (the remainder is due to wage markdowns and markups) and rationalizes most of the labor share decline in growing industries.
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From Labor to Intermediates: Firm Growth, Input Substitution, and Monopsony
Matthias Mertens, Benjamin Schoefer
IWH-CompNet Discussion Papers,
No. 1,
2024
Abstract
We document and dissect a new stylized fact about firm growth: the shift from labor to intermediate inputs. This shift occurs in input quantities, cost and output shares, and output elasticities. We establish this fact using German firm-level data and replicate it in administrative firm data from 11 additional countries. We also document these patterns in micro-aggregated industry data for 20 European countries (and, with respect to industry cost shares, for the US). We rationalize this novel regularity within a parsimonious model featuring (i) an elasticity of substitution between intermediates and labor that exceeds unity, and (ii) an increasing shadow price of labor relative to intermediates, due to monopsony power over labor or labor adjustment costs. The shift from labor to intermediates accounts for one half to one third of the decline in the labor share in growing firms (the remainder is due to wage markdowns and markups) and rationalizes most of the labor share decline in growing industries.
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Alumni
IWH Alumni The IWH maintains contact with its former employees worldwide. We involve our alumni in our work and keep them informed, for example, with a newsletter. We also plan…
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Media Response
Media Response April 2025 Reint Gropp: Gastbeitrag: Safe Assets: Krise in den USA, Chance für Deutschland und Europa? in: table.media, 25.04.2025 Oliver Holtemöller: Gefahr für…
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Archive
Media Response Archive 2021 2020 2019 2018 2017 2016 December 2021 IWH: Ausblick auf Wirtschaftsjahr 2022 in Sachsen mit Bezug auf IWH-Prognose zu Ostdeutschland: "Warum Sachsens…
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At a Glance
IWH at a Glance The Halle Institute for Economic Research (IWH) – Member of the Leibniz Association was founded on January 1, 1992. It is a member of the Leibniz Association. It…
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Wirtschaft im Wandel
Wirtschaft im Wandel Die Zeitschrift „Wirtschaft im Wandel“ unterrichtet die breite Öffentlichkeit über aktuelle Themen der Wirtschaftsforschung. Sie stellt wirtschaftspolitisch…
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Flight to Safety: How Economic Downturns Affect Talent Flows to Startups
Shai B. Bernstein, Richard R. Townsend, Ting Xu
Review of Financial Studies,
No. 3,
2024
Abstract
Using proprietary data from AngelList Talent, we study how startup job seekers’ search and application behavior changed during the COVID-19 downturn. We find that workers shifted their searches and applications away from less-established startups and toward more-established ones, even within the same individual over time. At the firm level, this shift was not offset by an influx of new job seekers. Less-established startups experienced a relative decline in the quantity and quality of applications, ultimately affecting their hiring. Our findings uncover a flight-to-safety channel in the labor market that may amplify the procyclical nature of entrepreneurial activities.
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