An Empirical Test of Reder Competition and Specific Human Capital Against Standard Wage Competition

Ludsteck, Johannes and Haupt, Harry (July 2007): An Empirical Test of Reder Competition and Specific Human Capital Against Standard Wage Competition. Discussion Papers in Economics 2007-22

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 has been emphasized in a classical contribution by Reder (1955) and implies that wage reactions to employment changes can be expected to be more pronounced for low wage workers than for high wage workers. We test this hypothesis (together with a related hypothesis on firm-specific human capital) by applying a bootstrap-based quantile regression approach to censored panel data from the German employment register. Our findings suggest that market clearing is achieved by a combination of wage and hiring standards adjustment.

• Item Type: Paper (Discussion Paper)
• Keywords: wage setting, hiring standards, wage structure, efficiency wages, panel quantile regression, censoring
• Subjects: Economics; Economics > Discussion Papers in Economics; Economics > Discussion Papers in Economics > Labor; Economics > Discussion Papers in Economics > Statistical Methods
• Dewey Classification: 300 Social sciences; 300 Social sciences > 330 Wirtschaft
• Journal of Economic Literature classification: J31, J41, C24
• Language: English