How Substitutable Are Workers? Evidence from Worker Deaths

81 Pages Posted: 5 Mar 2017

See all articles by Simon Jäger

Simon Jäger

Massachusetts Institute of Technology (MIT); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics; briq- Institute on Behavior & Inequality

Date Written: January 14, 2016

Abstract

The substitutability between workers within a firm, and between incumbent workers and outsiders, matters for understanding the operation of internal labor markets and the consequences of worker turnover. To assess the substitutability of workers, I estimate how exogenous worker exits affect a firm’s demand for incumbent workers and new hires. Using matched employer-employee data based on the universe of German social security records, I analyze the effects of 34,000 unexpected worker deaths and show that these worker exits on average raise the remaining workers’ wages and retention probabilities for a period of several years. These findings are difficult to reconcile with frictionless labor markets and perfect substitutability between incumbent workers and outsiders. The average effect masks substantial heterogeneity: Coworkers in the same occupation as the deceased see positive wage effects; coworkers in other occupations instead experience wage decreases when a high-skilled worker or manager dies. Thus, coworkers in the same occupation appear to be substitutes, while high-skilled workers and managers appear to be complements to coworkers in other occupations. Finally, when the external labor market in the deceased’s occupation is thin, incumbents’ wages respond more and external hiring responds less to a worker death. The results suggest that thin external markets for skills lead to higher firm-specificity of human capital and lower replaceability of incumbents.

JEL Classification: J

Suggested Citation

Jäger, Simon, How Substitutable Are Workers? Evidence from Worker Deaths (January 14, 2016). Available at SSRN: https://ssrn.com/abstract=2925897 or http://dx.doi.org/10.2139/ssrn.2925897

Simon Jäger (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

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

briq- Institute on Behavior & Inequality ( email )

Schaumburg-Lippe-Straße 5-9
Bonn, 53113
Germany

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