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Labor Market Risk in Germany

Author

Listed:
  • Krebs, Tom

    (University of Mannheim)

  • Yao, Yao

    (University of Birmingham)

Abstract

This paper uses annual data drawn from the GSOEP to estimate individual earnings risk (labor market risk) in Germany for the period 1983-2012. The econometric specification of the earnings process allows for transitory shocks and permanent shocks to individual earnings. We find that both the transitory component and the permanent component of earnings risk have been rising in West Germany in the 1990s and have remained at elevated levels in the 2000s. In contrast, labor market risk in East Germany did not rise. These findings are robust to different sample selection criteria and changes in the specification of the earnings process. We provide a simple welfare calculation that suggests that the negative welfare consequences of the observed rise in the permanent component of earnings risk in West Germany are substantial. We argue that the time series evidence is not consistent with the view that international trade integration has been a main driver of the observed rise in labor market risk in West Germany.

Suggested Citation

  • Krebs, Tom & Yao, Yao, 2016. "Labor Market Risk in Germany," IZA Discussion Papers 9869, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp9869
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    References listed on IDEAS

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    Cited by:

    1. Gomes, Diego B.P. & Iachan, Felipe S. & Santos, Cezar, 2020. "Labor earnings dynamics in a developing economy with a large informal sector," Journal of Economic Dynamics and Control, Elsevier, vol. 113(C).
    2. Krebs, Tom & Scheffel, Martin, 2016. "Structural reform in Germany," Working Papers 16-05, University of Mannheim, Department of Economics.
    3. Horneff, Vanya & Liebler, Daniel & Maurer, Raimond & Mitchell, Olivia S., 2019. "Implications of money-back guarantees for individual retirement accounts: Protection then and now," SAFE Working Paper Series 263, Leibniz Institute for Financial Research SAFE.
    4. Ulrich Fritsche & Johannes Puckelwald, 2018. "Deciphering Professional Forecasters’ Stories - Analyzing a Corpus of Textual Predictions for the German Economy," Macroeconomics and Finance Series 201804, University of Hamburg, Department of Socioeconomics.
    5. Diego Gomes & Cezar Santos & Felipe Iachan, 2019. "Labor Earnings Dynamics with a Large Informal Sector," 2019 Meeting Papers 793, Society for Economic Dynamics.
    6. Mr. Tom Krebs & Mr. Martin Scheffel, 2016. "Structural Reform in Germany," IMF Working Papers 2016/096, International Monetary Fund.

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    More about this item

    Keywords

    labor market risk; Germany;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets

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