During the last decades, Germany and many other countries have experienced an upskilling of the workforce accompanied by a technological shift towards highly educated labor. Recent evidence for the U.S. labor market indicates declining wages for college graduates in the aftermath of the tech bust in 2000, while post-college workers (i. e., those with postbaccalaureate degree) face continuously high employment and wage opportunities (Beaudry et al. 2014, 2016). If similar patterns had occurred in Germany, this would indicate, “declining fortunes of the young” (Beaudry et al. 2014) to be more than a phenomenon of the U.S. labor market.

To investigate empirically, whether there has been a corresponding trend in Germany, we have selected a set of employment indicators to analyze the chances and performance of labor market entrants in Germany over time. We focus on young workers since general changes in the labor market are first apparent for them (Kambourov and Manovskii 2009). The empirical analysis uses long-run information of a comprehensive sample of registered employees in the German social security system for the years 1975 to 2010 with about 11.5 million observations. Besides consideration of education attainment and wages overall, we put a particular focus of our study on the developments of the task composition, the chances of receiving a top-paying job, entry wages and wage growth, and wage premia for job market entrants over three and a half decades. Moreover, to allow for a detailed picture we distinguish four different education levels in the analysis. These comprise two distinct types of higher qualification (university and university of applied sciences), medium qualification (persons with completed vocational training in the German apprenticeship system) and low qualification (persons lacking completed vocational education). The data allow conducting a detailed descriptive analysis comparing a large number of cohorts of job market entrants over time.

Summarizing the empirical picture obtained from the indicators clearly indicates that there was a turning point of the labor market chances of young job market entrants around the year 2000: highly-educated workers have faced declining employment opportunities in top-paying jobs and, partly, in analytical jobs after 2000. Real entry wages have fallen for each new entry cohort since then until the end of the observation period. Moreover, wage growth after five years has substantially declined for cohorts entering the labor market in this period in Germany, too. In particular medium-skilled and higher-skilled labor market entrants have been affected by this development. Whereas the share of young high-skilled workers performing analytical jobs has declined only slightly after the tech bust (similar to the U.S.), our results indicate a general decline of wages for young workers. Falling wages are more profound for medium-skilled and low-skilled workers than for high-skilled workers. Wage premia for higher education slightly rose relative to medium-skilled and low-skilled workers. Moreover, the displacement effects, shrinking wages, and flattening wage growth for medium-skilled and low-skilled workers further signify the impacts of the increase in graduation rates in higher education.

The remainder of the paper is organized as follows. The next section gives a more detailed discussion of the related literature for the analysis at hand. Sect. 3 introduces the data used for the empirical analysis. The empirical results of the considered aspects are presented in Sect. 4. The final section provides the conclusions.

Wage inequality in the U.S. labor market increased during the 1980s, notably at the upper tail of the wage distribution (Katz and Murphy 1992). In particular, technological change complementing high-skilled workers and substituting low-skilled workers contributed as a major driving force to this process (Acemoglu 2002). Related to this, the skill-biased technological change hypothesis (SBTC) emphasized the exceeding growth in the demand for high-skilled workers with respect to its supply, at the expense of less-skilled workers (Katz and Autor 1999). Despite the convincing characterization in explaining the labor market development during the 1970s and 1980s, the more recent literature puts stronger focus on the increasing concentration of employment at both tails of the wage distribution associated with a strong decline of medium-skilled occupations. This development has been called job polarization, e. g. Autor et al. (2003, 2006, 2008).

Increasing wage inequality has long been thought of being a phenomenon solely present in Anglo-Saxon labor markets. From this perspective, wage inequality in Anglo-Saxon countries and high unemployment rates of low-skilled workers in Continental Europe appeared as ‘two sides of the same coin’, both stemming from the relative fall in the demand for low-skilled labor (Krugman 1994). Labor market adjustment in Germany occurred through an alteration of employment rather than wages (Antonczyk et al. 2010; Naticchioni et al. 2014). Despite the developments of the U.S. labor market until the early 2000s, a recent strand of the literature on inequality portrays the demand for high-skilled labor as a boom-bust cycle ceasing with the tech bust in 2000. Beaudry et al. (2016) argue that the reversal in the demand for high-skilled workers led to a cascade effect in which college workers perform jobs that have been previously performed by medium-skilled workers, who for their parts pushed low-skilled workers further down on the occupational ladder or even out of employment. Beaudry et al. (2014) underline the trend of an increasing share of the working-age population with a college degree but declining cognitive employment shares, i. e. a declining share of workers in jobs with high intensity of abstract thinking, and declining wages after 2000. In contrast to that, job entrants with a post-college degree faced stable cognitive employment shares and wage profiles.

Starting in the 1990s, rising wage inequality has also occurred in Germany. The high and rising (long-term) unemployment after German reunification forced several fundamental reforms of the labor market. At the same time, wage setting in Germany began to erode due to a diminishing importance of collective bargaining between employer associations and unions (Ochel 2005). A sharp decline in union coverage, especially at the end of the 1990s, has accompanied this development and can explain a major part of the lower tail inequality (Dustmann et al. 2009). In the course of slow growth and persistent unemployment after 2000, the ‘sick man of Europe’ (The Economist 1999) reformed the labor market even further (the so-called ‘Agenda 2010’ reforms). These reforms lowered implicit minimum wages by reducing benefit entitlement with respect to level and duration. Overall, the reforms were particularly designed for decreasing wages and increasing employment at the lower tail of the wage distribution (Dustmann et al. 2014).

In stark contrast with most European countries, unemployment in Germany was hardly affected neither by the 2008/2009 recession, despite a dramatic fall in gross domestic product, nor the recent Euro crisis. The relative strength of the labor market can be assigned to a number of reasons, including the extensive labor market reforms that have increased flexibility and allowing greater wage inequality, and declining unit labor costs for the past two decades, i. e. productivity growth exceeding wage growth (Dustmann et al. 2014). For that reason, Fitzenberger et al. (2011) note that the process of increasing lower tail wage inequality in Germany is characterized by episodic events, and not due to the lower tail polarization hypothesis suggested by Autor and Dorn (2013). Decomposing wage variance into transitory and permanent parts, Myck et al. (2011) found that permanent inequality peaked in 2001 and declined afterwards. However, a polarization of wages still occurred thereafter but seems to due to transitory factors only.

In comparison, the influence of institutional factors upon upper tail wage inequality is limited in Germany. It slightly increased during the 1980s, mainly driven by the changing composition of the workforce (Dustmann et al. 2009). In contrast to the U.S., growth in supply and demand for high-skilled workers moved in parallel resulting in less upper tail wage inequality (Acemoglu 2003). The share of high-skilled workers increased at a roughly linear rate. Similarly to the U.S. in the 1970s (Katz and Murphy 1992), the expansion in the supply of high-skilled workers occurred at the pace of rising demand for these qualifications (Antonczyk et al. 2010).

Autor et al. (2003) describe that the growth of information and communication technology (ICT) is the crucial trigger for job polarization. ICT has caused a rapid decline of costs due to increasing speed of performing codifiable tasks by computers, which has induced employers to substitute technology for labor. These tasks were characteristic for medium-skilled workers. Advanced communication technologies also support offshoring to foreign worksites for information-based tasks (Blinder 2009). At the same time, they may enhance the productivity of abstract tasks, such as managing or programming, at the top of the wage distribution where productivity strongly relies upon information as an input (Autor et al. 2003). Over the last decades, the impact of information technology can be supposed to have reached some kind of limit for jobs at the bottom of the wage distribution, where tasks are typically non-routine manual and require non-codifiable physical, verbal or visual activities. The increasing importance of ICT has thus be supposed to have intensified job polarization that complements high-paying jobs and substitutes medium-paying jobs, while only having a small impact on low-paying jobs. In the past decade, ICT became a general-purpose technology affecting the entire economy. The shrinking costs and simplification of usage led to a breakthrough in private households and firms. In 2014, 99% of German firms had access to the internet (Eurostat 2015b). Similarly, 89% of private households in Germany had access to a computer (Eurostat 2015c). In 2014, 72% of the individuals used the internet daily (Eurostat 2015d). In addition, computerization and digitalization found its broad way into employment. The share of workers using a computer increased from 45% in 2003 to 61% in 2013 (Eurostat 2015a). Thus, with the increasing coverage of ICT in the workplace, ICT might also gain importance for routine jobs resulting in complementarities rather than substitution, see, e. g., Autor et al. (2014).

However, evidence on the increasing importance of ICT in routine jobs is scarce. Using regional differences in broadband internet coverage, Akerman et al. (2015) show that access to high-speed internet further complements skilled workers in non-routine abstract jobs and impairs labor market outcomes of unskilled workers in routine jobs. Moreover, Forman et al. (2012) find that, despite vast internet investment across U.S. counties, only 6% of the counties that had the highest concentration in IT activities before the investment benefitted from it in terms of wages, while the remaining counties did not. Similarly, Acemoglu et al. (2014) conclude that increasing IT intensity across manufacturing industries does not increase productivity outside computer manufacturing. Hence, a potential reversal of the job polarization hypothesis in the recent decade through a higher adaptability of ICT skills among unskilled workers and higher IT intensity in manufacturing cannot be empirically affirmed (yet). To the contrary, the scarce available evidence indicates that the introduction of ICT in these sectors seems to have further amplified job polarization.

The empirical analysis uses data for West Germany for the years 1975 to 2010, obtained from the Sample of Integrated Labor Market Biographies (SIAB). It is a 2% random sample of the German social security records provided by the Institute for Employment Research (IAB) containing more than 11.5 million observations. The social security records represent about 80% of the working population in Germany, excluding e. g. civil servants, soldiers, and self-employed. The data are highly reliable due to the mandatory and administrative nature, where misreporting on wages would cause severe penalties for the employer.

Since the data stem from administrative processes, wages are right-censored at the social security contribution assessment ceiling. For male workers, the share of censored wages varies between 9% and 14% annually, for women censoring affects less than 5% of the observations. Right-censoring will, however, only marginally affect our analysis, since we mainly focus on median wages and on young workers receiving starting wages. For calculating wage premia in the analysis below, we impute wages above the censoring threshold according to Gartner (2005). In line with Dustmann et al. (2009), we further impose the restriction that the daily wage observation is at least 20 Deutschmark (in 1995 DM). In addition, we correct for a structural break of the wage variable from 1983 to 1984, when bonus payments have been included in the data. Thereby, we follow the approach by Dustmann et al. (2009) that extends the solution suggested by Fitzenberger (1999). Lastly, we adjust wages to inflation.

To investigate the role of education level, we distinguish between four types of education with two types of higher education. Graduates from university are the highest skill group in this classification (high-uni-skilled), the second highest group consists of graduates from university of applied sciences (Fachhochschule, high-fh-skilled). It refers to graduation from a unique kind of tertiary schools in German-speaking countries. The major distinction between the two high-skilled groups is that university has a more theoretically based education and usually longer duration of education (at least until the implementation of the so-called Bologna reform, introducing bachelors’ degrees and masters’ degrees at all tertiary education institutions in Germany). The university of applied sciences is further characterized by a lower focus on abstract skills. Enrollment in university of applied sciences requires a technical diploma (Fachabitur) with lower admission criteria; for university, students generally need to possess a university entrance diploma (Abitur). In the 2011 International Standard Classification of Education (ISCED) (OECD, European Union, UNESCO Institute for Statistics 2015), university of applied sciences (Germany) is assigned level 6, i. e. programs designed to provide intermediate academic skills leading to a first degree with a typical duration of three to four years. The on average younger age of labor market entry reflects the shorter study duration. University (Germany) is defined as level 7, covering scientifically more complex studies designed to provide advanced academic skills leading to a second degree. In addition to these two groups, we regard medium-skilled workers who possess a university entrance diploma and/or a completed a vocational training in the German apprenticeship system, and low-skilled workers without any formal vocational qualification.

To analyze the composition of tasks over time, jobs are assigned to tasks according to the classification by Dengler et al. (2014) for the year 2011 (annual variation of the task composition is low). It is comparable to the U.S. dictionary of occupational titles. Each occupation is composed of five tasks, the main task is determined by the largest task fraction: (1) Analytical non-routine (e. g. research, evaluation, planning, and interpret rules). (2) Interactive non-routine (e. g. negotiate, teach, entertain, or manage personnel). (3) Cognitive routine (e. g. calculating, measuring, or bookkeeping). (4) Manual routine (e. g. operate, or control machines). (5) Manual non-routine (e. g. repair, renovate, restore, or nurse).

Finally, we have imposed a number of restrictions on the analysis’ sample for consistency reasons. Since there is no exact information on working hours, we consider only full-time employed persons. Moreover, the education variable is subject to missing values and inconsistencies as noted by Fitzenberger et al. (2006). We correct it using forward and backward extrapolation. The analysis sample contains only employees between 20 and 60 years of age; we will focus on the age group between 25 and 35 years in particular. Since labor market entry is not directly observable in the data, we approximate it by potential experience calculated as the difference between the individual age and the typical qualification-controlled starting age in the labor market. We assume that persons possess their final education attainment at age 35 and compute the fraction of observations for each education attainment and age group based on the number of observations at the reference age in the four education groups. We define the age of labor market entry, when the fraction exceeds 50%. It is 19 years for low-skilled, 20 years for medium-skilled, 26 years for high-fh-skilled and 28 years for high-uni-skilled workers.

With the aim of providing a picture of the labor market chances of job market entrants in Germany, we have analyzed the labor market patterns of this group over a long period of time from 1975 to 2010 considering aspects of education attainment, wages and jobs. The empirical results indicate that real wages had stagnated from the mid-1990s onwards and have even declined since the mid-2000s, a period characterized by an increasing importance of ICT. Also since the mid-1990s, the share of young workers with a higher education attainment has started to increase markedly in Germany. At the same time, a shrinking size of young cohorts reveals the effects of the accelerated demographic change.

We demonstrate that the wage gap between young and experienced workers has increased over time, although the absolute cohort size of young workers has declined and the share of high-skilled young workers has increased. In contrast to the findings for the U.S., this is associated with a slight decline in the chances of high-skilled workers to obtaining analytical jobs only. At the same time, however, we have found a clear decrease in the opportunity of young workers to work in top-paying jobs. Although the share of young workers in top-paying occupations has overall risen (particularly during the 1990s), the relative chances of obtaining a top-paying occupation have fallen slightly within the groups of high-skilled labor market entrants. Besides the reduced probability of getting a top-paying job, wage growth has declined substantially, in particular for the two groups of high-skilled workers considered and for medium-skilled workers. Nevertheless, with consideration of the long-run picture our empirical evidence does not speak for a distinct reversal in wage expectations of high-skilled workers. Although wage growth for cohorts entering the labor market after 2000 has been smaller than for cohorts entering in the 1990s, it recaptured its magnitude from around the year 1990. For medium-skilled labor market entrants, in contrast, wages and wage growth have continually and remarkably declined.

The most important results of our analysis are the indications of a cascading pattern in which the decline in the share of labor market entrants in top-paying jobs was profound for high-uni-skilled workers and for high-fh-skilled workers. In addition, the share of high-skilled workers in medium-paying jobs increased at the expense of the share in top-paying jobs. The shares of medium-skilled and low-skilled workers in bottom-paying positions have risen, while the share of medium-paying jobs has fallen.

Hence, in difference to the results reported for the U.S. by Beaudry et al. (2014) that report pronounced effects for college graduates, our results confirm some kind of cascade of jobs, but it is not limited to the group of high-skilled workers. The analysis of the development of wage premia to education levels over time can be interpreted as evidence in the opposite direction: within the two considered groups of high-skilled, wage premia have remained rather stable over time and have even grown relative to medium-skilled and low-skilled workers. Nevertheless, the results overall indicate some similarities between the trends of the U.S. and the German labor market during the last decade with regard to displacement effects of lower qualifications. However, the obtained patterns differ in terms of the particular skill groups affected.