Working Paper: CEPR ID: DP1869
Authors: Michael Burda; Antje Mertens
Abstract: This paper investigates the effect of displacement on wages of socially insured German workers, who became unemployed in 1986. Because detailed information on job loss is unavailable, displacement status is predicted using a probit, estimated on the German Socioeconomic Panel. In contrast to US findings, post-displacement wages decline only slightly upon re-employment. The lowest earnings quartile, in which displacement is concentrated, even gains slightly (2%), while wage growth losses for the upper three quartiles are higher (17%). Limited wage adjustment of displaced workers is likely to play an important role in explaining aggregate wage rigidity in Germany.
Keywords: displaced workers; wage determination; tenure; wage rigidity
JEL Codes: J30; J63; J65
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| worker displacement in Germany (J63) | significant wage growth losses compared to the United States (J39) |
| displacement (J63) | wage growth reduction (J38) |
| displacement (J63) | lower wage growth than average unemployed worker (J69) |
| limited wage adjustment of displaced workers (J68) | aggregate wage rigidity in Germany (J39) |
| displacement (J63) | negligible contributions to overall nominal wage changes in Germany (J39) |
| displacement primarily affects lower wage segments of the labor market (F66) | negligible contributions to overall nominal wage changes in Germany (J39) |