Doing well in reforming the labour market? Recent trends in job stability and wages in Germany

The German employment miracle with a weak decline in employment and low unemployment during the great recession seems to be a good example for a successful labour market reform. While the aggregate level of job turnover seems to be stable over time, there are nevertheless concerns about rising inequality in the labour market. In this paper we analyze the quality of newly started jobs between 1998 and 2010 using a huge administrative data set which allows to look at job durations and earnings for different groups of workers over time. Microeconometric models of job stability and wages are estimated to control for a wide range of individual, firm and regional characteristics. Our results show a fairly constant level of overall job stability but decreasing wages and rising wage dispersion over time, which is in line with wage moderation explanations of the employment miracle. In a further analysis we focus on certain groups of workers with disadvantages in job duration and wages, like low skilled, formerly unemployed and temporary agency workers. Again, we find evidence of a rise in job durations of new jobs accompanied by a decrease in wages.