Unequal Pay or Unequal Employment? What Drives the Skill-Composition of Labor Flows in Germany?

38 Pages Posted: 20 Jan 2012

See all articles by Melanie Arntz

Melanie Arntz

ZEW – Leibniz Centre for European Economic Research

Terry Gregory

IZA Institute of Labor Economics; ZEW – Leibniz Centre for European Economic Research

Florian Lehmer

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Date Written: December 1, 2011

Abstract

This paper examines the determinants of gross labor flows in a context where modeling the migration decision as a wage-maximizing process may be inadequate due to regional wage rigidities that result from central wage bargaining. In such a context, the framework that has been developed by Borjas et al. (1992) on the selectivity of internal migrants with respect to skills has to be extended to allow migrants to move to regions that best reward their skills in terms of both wages and employment. The extended framework predicts skilled workers to be disproportionately attracted to regions with higher mean wages and employment rates as well as higher regional wage and employment inequalities. Estimates from a labor flow fixed effects model and a GMM estimator show that these predictions hold, but only the effects for mean employment rates and employment inequality are robust and significant. The paper may thus be able to explain why earlier attempts to explain skill selectivity in Europe within a pure wage-based approach failed to replicate the US results.

Keywords: gross migration, selectivity, wage inequality, employment inequality

JEL Classification: R23, J31, J61

Suggested Citation

Arntz, Melanie and Gregory, Terry and Lehmer, Florian, Unequal Pay or Unequal Employment? What Drives the Skill-Composition of Labor Flows in Germany? (December 1, 2011). ZEW - Centre for European Economic Research Discussion Paper No. 11-074, Available at SSRN: https://ssrn.com/abstract=1988857 or http://dx.doi.org/10.2139/ssrn.1988857

Melanie Arntz (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Terry Gregory

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://https://sites.google.com/view/terrygregory

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
Mannheim, 68161
Germany

HOME PAGE: http://https://sites.google.com/view/terrygregory

Florian Lehmer

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

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