Higher wages or lower expectations? Adjustments of German firms in the hiring process

Labour shortages are a field of research that has been investigated quite thoroughly. The reactions of firms facing problems during the hiring process are, however, largely neglected in empirical literature. Our research will fill this empirical gap and shed light on the question of whether reactions according to the neoclassical theory or to the Reder Hypothesis are more common in reality. We make use of a unique dataset, the German Job Vacancy Survey, which allows us to observe the entire operational recruitment process including potential problems, concessions made by firms as well as characteristics of the hired candidate, the vacancy and the firm itself. Whether concessions are made mainly depends on the labour market situation and on the specific hiring problems of a firm. We also find that firms are rather flexible in their reactions in accordance with the specific hiring problem. Therefore, both theories seem to apply in reality.