Does Less Wage Compression Lead to Less Training in Germany? – an Expansion of Acemoglu and Pischke's Model of Training in Imperfect Labor Markets

For the 1990s, Acemoglu and Pischke’s seminal model of training in imperfect labor markets was able to explain why Germany had a low wage-low mobility-high training equilibrium. Since then the institutional framework of German labor markets has changed, leading to less wage compression and a slump of firms’ training costs. Therefore, it is necessary to expand Acemoglu and Pischke’s model: We incorporate the wage compression due to collective bargaining into the model and analyze how the different components of training costs influence the parameters of the training equilibrium. Furthermore, we present empirical evidence demonstrating the usefulness of our expanded model: Germany has seen a strong trend towards the decentralization of collective bargaining, and firms have fundamentally changed their apprenticeship training; they train considerably more at the work place and have thus decreased their net training costs. However, firms have not reduced their supply of training positions, so that most adolescents of an age cohort still do an apprenticeship. These results suggest that further empirical research is necessary on the connection between decentralization of collective wage bargaining and training costs, and on more reasons for the fundamental change in apprenticeship training.