Employment dynamics and heterogeneous labor markets [Elektronische Ressource] : an empirical analysis with linked employer-employee and company data / Susanne Steffes
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Employment dynamics and heterogeneous labor markets [Elektronische Ressource] : an empirical analysis with linked employer-employee and company data / Susanne Steffes

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Employment Dynamics andHeterogeneous Labor Markets: AnEmpirical Analysis with LinkedEmployer-Employee and Company DataInaugural-Dissertation zur Erlangung der Doktorwurde˜ der Wirtschafts- undVerhaltenswissenschaftlichen Fakult˜at der Albert-Ludwigs-Universit˜at FreiburgSusanne Stefiesgeboren in Darmstadtvorgelegt am: 8. Juli 2010Dekan: Prof. Dr. Dieter TscheulinErstgutachter: Prof. Bernd Fitzenberger, Ph.D.Zweitgutachter: Prof. Dr. Dr. h. c. Bernd SchauenbergPromotionsbeschluss: 13. Oktober 2010In memory of my MomAcknowledgementsFirst of all, I want to thank my supervisor Bernd Fitzenberger for his greatsupport. Our numerous and intensive discussions gave me motivation and hiscomments had a huge impact on my work. His lectures and seminars, which Ijoined during my studies at the University of Mannheim, already sparked myinterests in empirical labor market research. After I had written my diplomathesis with him, I was happy for the possibility to start my dissertation underhissupervision. IamalsothankfultomysecondsupervisorBerndSchauenberg.I want to thank Bernhard Boockmann for his cooperation and support. Ad-ditionally,IamthankfultoAnthonyStrittmatter. Thetimeswithmycolleaguesat the ZEW were always productive and fruitful. Especially, Melanie Arntz andNicole Gurtzgen˜ gave helpful comments to my papers.

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Employment Dynamics and
Heterogeneous Labor Markets: An
Empirical Analysis with Linked
Employer-Employee and Company Data
Inaugural-Dissertation zur Erlangung der Doktorwurde˜ der Wirtschafts- und
Verhaltenswissenschaftlichen Fakult˜at der Albert-Ludwigs-Universit˜at Freiburg
Susanne Stefies
geboren in Darmstadt
vorgelegt am: 8. Juli 2010Dekan: Prof. Dr. Dieter Tscheulin
Erstgutachter: Prof. Bernd Fitzenberger, Ph.D.
Zweitgutachter: Prof. Dr. Dr. h. c. Bernd Schauenberg
Promotionsbeschluss: 13. Oktober 2010In memory of my MomAcknowledgements
First of all, I want to thank my supervisor Bernd Fitzenberger for his great
support. Our numerous and intensive discussions gave me motivation and his
comments had a huge impact on my work. His lectures and seminars, which I
joined during my studies at the University of Mannheim, already sparked my
interests in empirical labor market research. After I had written my diploma
thesis with him, I was happy for the possibility to start my dissertation under
hissupervision. IamalsothankfultomysecondsupervisorBerndSchauenberg.
I want to thank Bernhard Boockmann for his cooperation and support. Ad-
ditionally,IamthankfultoAnthonyStrittmatter. Thetimeswithmycolleagues
at the ZEW were always productive and fruitful. Especially, Melanie Arntz and
Nicole Gurtzgen˜ gave helpful comments to my papers.
I wrote three chapters of this dissertation with data of the Research Data
Centre (FDZ) of the Federal Employment Agency at the Institute for Employ-
ment Research. I am grateful to Stefan Bender, Peter Jacobebbinghaus and
Alexandra Schmucker for their support with the data. Financial support by the
Deutsche Forschungsgemeinschaft (FR 715/5-2) is gratefully acknowledged.
My parents, parents and sisters in law as well as my brother and sister gave
me a lot of energy and provided a lot of their free time (looking after my child).
WithoutthatIcouldnothavewrittenthisdissertation. Iwanttothankthemfor
this. Most of my thanks go to my husband Christoph and my son Maximilian.
They had some hard times with me, but they always pushed me up again.Contents
0 Introduction iv
0.1 General Introduction . . . . . . . . . . . . . . . . . . . . . . . . . iv
0.2 Own Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . viii
0.3 Summary of the Chapters . . . . . . . . . . . . . . . . . . . . . . x
0.3.1 Chapter 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . x
0.3.2 Chapter 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
0.3.3 Chapter 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . xii
0.3.4 Chapter 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii
1 Workers, Firms or Institutions 1
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Theoretical Background . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 The Role of Institutions for Job Durations . . . . . . . . . . . . . 6
1.4 Data and Descriptives . . . . . . . . . . . . . . . . . . . . . . . . 8
1.4.1 Data on Job Durations. . . . . . . . . . . . . . . . . . . . 8
1.4.2 Sample Deflnition and Descriptive Statistics . . . . . . . . 10
1.5 Estimation Technique and Independent Variables . . . . . . . . . 12
1.6 Empirical Results . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.6.1 Estimates for Individual and Job-Speciflc Characteristics 14
1.6.2 for Firm and Institutional . . . 15
1.6.3 The Efiects for Difierent Groups of Workers . . . . . . . . 17
1.6.4 Competing Risks . . . . . . . . . . . . . . . . . . . . . . . 18
1.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
1.8 Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1.9 Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2 Seniority and Job Stability 29
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.2 Hypotheses on the Determinants of Employment Durations . . . 33
2.2.1 Job Matching . . . . . . . . . . . . . . . . . . . . . . . . . 33
2.2.2 Speciflc Human Capital . . . . . . . . . . . . . . . . . . . 35
iCONTENTS
2.2.3 Search Theory and the Role of Wages . . . . . . . . . . . 36
2.2.4 The Role of Institutions . . . . . . . . . . . . . . . . . . . 37
2.3 Data and Descriptive Statistics . . . . . . . . . . . . . . . . . . . 38
2.4 Estimation Technique . . . . . . . . . . . . . . . . . . . . . . . . 41
2.5 Results . . . . . . . . . . . . . . . . . . . . . . . . . . 44
2.5.1 The Impact of Firm Characteristics . . . . . . . . . . . . 44
2.5.2 The impact of individual characteristics . . . . . . . . . . 46
2.5.3 The Impact of Entry Wages . . . . . . . . . . . . . . . . . 48
2.6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
2.7 Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
2.8 Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
3 Employment Dynamics and Cyclical Shocks 63
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
3.2 Theoretical Considerations and Hypotheses . . . . . . . . . . . . 69
3.2.1 The Basic Theoretical Model . . . . . . . . . . . . . . . . 69
3.2.2 The Impact of Worker Heterogeneity . . . . . . . . . . . . 73
3.2.3 The Impact of Firmy . . . . . . . . . . . . . 76
3.3 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
3.3.1 Deflnition of Dependent Variables . . . . . . . . . . . . . 80
3.4 Empirical model . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
3.4.1 Econometric approach . . . . . . . . . . . . . . . . . . . . 82
3.4.2 Explanatory Variables and Speciflcations . . . . . . . . . 83
3.5 Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
3.5.1 Developments of Job and Worker Flow Rates Over Time. 89
3.5.2 The Impact of Shocks on Job Flows . . . . . . . . . . . . 91
3.5.3 The Impact of Shocks on Worker Flows . . . . . . . . . . 93
3.5.4 The Impact of Firm Characteristics on Job and Worker
Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
3.6 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
3.7 Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
3.8 Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
ii3.9 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
3.9.1 Value Functions . . . . . . . . . . . . . . . . . . . . . . . 114
3.9.2 Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
4 Employment Behavior After Maternity Leave 119
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
4.2 Theoretical Considerations and Hypotheses . . . . . . . . . . . . 124
4.3 Institutional Settings . . . . . . . . . . . . . . . . . . . . . . . . . 127
4.4 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129
4.4.1 General Information . . . . . . . . . . . . . . . . . . . . . 129
4.4.2 Deflnition of Maternity Leave Spells . . . . . . . . . . . . 130
4.4.3 of Covariates . . . . . . . . . . . . . . . . . . . 131
4.5 Econometric Approach . . . . . . . . . . . . . . . . . . . . . . . . 134
4.5.1 Competing Risks Model . . . . . . . . . . . . . . . . . . . 135
4.5.2 Cumulative Incidence . . . . . . . . . . . . . . . . . . . . 136
4.6 Empirical Results . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
4.6.1 Transition Probabilities from Maternity Leave. . . . . . . 137
4.6.2 Employment Stability After the Return to the Company . 143
4.6.3 Pre-birth Career and Fertility Decision . . . . . . . . . . . 146
4.7 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
4.8 Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
4.9 Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155
4.10 Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
4.10.1 Data preparation . . . . . . . . . . . . . . . . . . . . . . . 161
4.10.2 Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
4.10.3 Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
5 References 172
Bibliography of the Chapters 185
iii0 Introduction
0.1 General Introduction
In the last decades, the German unemployment rate was high and persistent,
compared with other industrial countries like the US or the UK (see flgure
1). Economists and politicians argue that low exibility in the labor market is
one reason for this persistence. In fact, compared with the US or the United
Kingdom, the German labor market is highly regulated (see OECD, 2003).
Restrictive job protection laws, as well as powerful unions and works councils,
increase costs of employment reduction and wage rigidities, which both could
result in low turnover rates and respectively high unemployment rates.
Figure 1: Unemployment rates in Germany, UK and US
Source: OECD Employment Outlook 2009, 2007, 2004, 2002. Note: Own illustrations.
As a consequence, in the early 2000s Germany experienced a remarkable
change in labor market policies resulting in - besides other things - more exi-
1bility. However, during this period, there was only few empirical evidence on
the exibility in the German labor market and thus, it was hardly possible, to
1For instance the possibilities for flxed-term contracts and temporary employment have been
extended.
iv0 INTRODUCTION
give predictions about the impact of these policies. Therefore, the German Re-
search Foundation (DFG) started a research program with the title "Flexibility
in Heterogeneous Labour Markets". This dissertation was written within one of
theseprojectsandhastheaimtoanswerthefollowingquestions: 1)Withregard
to employment, are there really low dynamics in the German labor market? 2)
Which are the determinants for employment dynamics? 3) Are there groups of
workers and flrms facing more dynamics than others? 4) How are employment
dynamics afiected by the business cycle?
Since the unemployment rate in Germany actually decreased recently, the
current public discussion focuses on the impact of demographic changes on the
labor market. The decreasing number of young and highly qualifled workers
leadstoaskillshortageinthenextdecadesandflrmsaresearchingforsolutions
to solve this problem. One solution is to activate the potential of workers,
which is already available, for instance the huge amount of women, who are
highlyqualifledbutcurrentlynotactiveinthelaborforce. Becauseemployment
histories,andthusemploymentdynamicsofwomen,areoftendominatedbylong
employment breaks due to child rearing, long-run exits from the labor market
areatypicalphenomenon. Thesebreaksandexitsarefollowedbyhugelossesof
human capital for flrms, but also for the women themselves. Employers as well
as politicians invest a lot in work-life balance measures or other incentives for
2shortening employment breaks after childbirth. Whether this is a successful
way, to activate young qualifled mothers, is still questionable. Therefore, this
dissertationalsoanswersthefollowingquestions: 5)Howworksthereintegration
process after birth in a large company? 6) Has the pre-birth performance a
positive impact on this reintegration process?
In order to analyze the exibility of labor markets, one should look at
ows, rather than on stocks. A labor market with a high stock of unemploy-
ment, which is determined by a high amount of individuals moving from job-
to-unemployment and vice versa, can hardly be called in exible. Moreover,
if unemployment periods are short, turnover and thus exibility is high. The
2For instance, the number of formal child care possibilities for children below age three has
been extended enormously in the last years, especially in West Germany.
v0 INTRODUCTION
Figure 2: Share of long-term unemployment in Germany, UK and US
Source: OECD Employment Outlook 2009, 2007, 2005, 2002, 2000, 1999. Note: Own illus-
trations.
shares of long-term unemployed (more than 6 months, more than 12 months,
respectively) on all unemployed for Germany, the UK and the US is shown in
flgure 2. The shares for Germany are on average more than 60 (50) percent
for unemployment durations over 6 (12) months. For the UK the shares are 45
and almost 30 percent, respectively. The shares for the US are the lowest with
17 and 9 percent, respectively. Figure 3 shows the stock as well as the number
of in ows and out ows of the unemployed over the last decade in Germany.
Obviously, there is some turnover in unemployment, but the relation between
the ows and the stock is most of the time below 2.
Withregardtoemploymentdynamics,oneindicatoristhe uctuationcoe–-
cient,whichmeasurestheshareofin owsandout owsonthestockofemployed
workers. Figure 4 shows yearly uctuation coe–cients for Germany and the re-
spective unemployment rate. Between 24 and 30 percent of the employment
relationships have been replaced every year. Obviously, turnover was lower
when unemployment was high, which could be evidence that voluntary ows
decrease in recessions. The question is now, whether this is true for all seg-
vi