An Empirical Test of the Reder Hypothesis

Ludsteck, Johannes and Haupt, Harald (2007): An Empirical Test of the Reder Hypothesis. Discussion Papers in Economics 2007-11

Abstract

A firm that faces insufficient supply of labor can either increase the wage offer to attract more applicants, or reduce the hiring standard to enlarge the pool of potential employees, or do both. This simultaneous adjustment of wages and hiring standards in response to changes in market conditions has been emphasized in a classical contribution by Reder and leads to the effect that wage reactions to employment changes can be expected to be more pronounced for low wage workers than for high wage workers. This is the `Reder Hypothesis'. The present contribution sets out to test this hypothesis using German employment register data and a censored panel quantile regression approach. Our findings support the Reder Hypothesis, suggesting that market clearing in labor markets is achieved by a combination of wage adjustments and changes in hiring standards.

• Item Type: Paper (Discussion Paper)
• Keywords: standards, overqualification, wage structure, panel quantile regression, censoring
• Collections: Economics; Economics > Discussion Papers in Economics; Economics > Discussion Papers in Economics > Labor; Economics > Discussion Papers in Economics > Statistical Methods
• Subjects: 300 Social sciences > 300 Social sciences, sociology and anthropology; 300 Social sciences > 330 Economics
• JEL Classification: J310, J410, C240
• Language: English