Essays on long-term labor market developments and retirement in Germany

Abstract

The welfare state, its institutions and the labor market are subject to constant change in Germany. At all times, their current state is an outcome of an ongoing process of adjustment. First elements of insurance against labor market risks were implemented as early as 1260 by miners’ associations (Bingener et al, 2009). The evolution of welfare state and according legislation until today was heavily influenced by regime changes, wars, the zeitgeist, as well as social and political necessities. This cumulative dissertation comprises of four chapters and focusses on the development of employees’ working careers under Germany’s current regime, which emerged following World War 2. Since then, working careers are strongly influenced by major political changes like the German reunification but also by smaller changes in regulatory framework and socioeconomic environment. The first two chapters deal with labor market earnings, which Barr (2012) lists as the most important source of welfare aside from governmental activities. Both chapters show how working lives and earnings trajectories of current West German employees differ from those of previous generations. The main contribution is an intragenerational comparison of cohorts’ earnings inequality and volatility to scrutinize long-term differences and the evolution of labor market outcomes. An example is the increase in unemployment over the time frame considered, which in turn affects distinct cohorts at different ages and, therefore, in different ways. The analyses reflect challenges that German workers face through labor market adjustments caused by e.g. deregulation, deunionization, globalization, and skill biased technological change. The underlying data enables the comparison of complete working life cycles of older cohorts to early and middle stages of younger cohorts’ careers. By taking this cohort perspective both studies show how different generations fared at identical ages, uncovering long-term trends and impacts of various labor market developments. Further, such an approach complements more common methods of using annual data or short panels to measure earnings inequality and volatility. Another great challenge Germany faces is population aging, which exerts financial pressure on the public pension system of the German welfare state. To counteract, Germany introduced reforms that aim to keep persons employed for a longer time and limit pension growth. The last two chapters deal with questions related to this financial pressure and effects on the financial well-being of affected individuals. Therefore, those chapters complement the analysis of the labor market by looking at the end of employees’ active working lives – at what happens when workers transition into retirement and how they fare when retired. The chapters concentrate on cohorts that are already retired and analyze questions concerning the German statutory pay-as-you-go (PAYG) pension system. Since old-age security provided by the welfare state is the most important source of old-age income in Germany, trends and results found in these studies provide important evidence for subsequent cohorts’ retirement behavior, pension provisions and possible financial problems of the monetarily less fortunate. Central to both papers is a reform that introduces disincentives for early retirement, effectively reducing pensions for early retirees. The underlying data consists of cohorts that are not affected by the reform, cohorts that are partially affected, and cohorts that are completely affected. This allows for disentangling reform effects from time effects.

Diese kumulative Dissertation besteht aus vier eigenständigen Studien, die thematisch miteinander verknüpft sind. Insgesamt geht es um die Lebensverläufe westdeutscher Arbeitnehmer seit dem zweiten Weltkrieg. Die ersten beiden Aufsätze vergleichen die Erwerbsverläufe verschiedener Generationen im Zeitablauf, wobei sich unterschiedliche Phasen auf dem bzw. diverse Transformationsprozesse des Arbeitsmarkt(s) in den unterschiedlichen Einkommenspfaden widerspiegeln. Die beiden hinteren Kapitel widmen sich dem Übergang vom Erwerbsleben in die Rente. Da die alternde Gesellschaft zunehmend die Finanzierung der deutschen Rentenversicherung erschwert, sind bei dieser wichtigen Säule des deutschen Wohlfahrtsstaats verschiedene Reformen durchgeführt worden. Eine dieser Reformen sowie diverse Zeittrends werden in den letzten beiden Kapiteln genauer untersucht.