Continuity and Change in the German Labor Market

The German labor market has long been considered the prototype of a “coordinated market economy” with robust labor market institutions, vocational training and apprenticeship systems, and high productivity. However, there is a debate if this still holds true as Germany has undergone major changes in recent decades. The dominant perspectives either observe dualization of the German labor market or generally rising precariousness. The former view emphasizes policy changes that widened the gap between the core labor force and marginal workers. The latter account sees deterioration of working conditions for all workers as a consequence deregulation and flexibilization. Our study aims to contrast these perspectives with comprehensive empirical evidence of the developments over the last three decades. We use data from the German Socio-Economic Panel (SOEP), made available through the Luxembourg Income Study (LIS) to analyze the state of the contemporary German labor market and how labor market outcomes have changed from 1984 to 2010. More specifically, we examine employment, temporary and part-time employment, wages, and low wage employment. We estimate regression models with two way fixed effects for years and federal states. We also investigate how the effects of micro-level characteristics, such as sex, education, citizenship and occupation, changed over time. The only apparently improving trend is the rise of employment among working-aged adults. A few labor market outcomes exhibit stability over the study period. However, other labor market outcomes – especially part-time employment and low wage employment – have grown much worse. There has also been a steep increase in wage and earnings inequality. These changes in the German labor market have occurred at the same time with women’s increasing labor force participation, immigrants remaining a relatively stable share of employees, and substantial improvements in the education/skill composition of the labor force. Our analyses also reveal clear, and relatively stable, regional differences within Germany. The analyses show women became more likely to work, but experienced slightly increasing disadvantages in terms of part-time and low wage employment, and for hourly wages. Young adults have become increasingly less likely to be employed. We also find that those with vocational training or high levels of education have becoming increasingly advantaged 1984-2010. Most other key predictors have had relatively stable effects over time. Despite rising precariousness in a number of cases, the empirical evidence, thus, provides greater support of German labor market dualization. However, we also find evidence that the German model is resilient and robust. Some aspects of the labor market look more promising in 2010 than in the 1990s, and even than in the 1980s.