Abstract:
We analyze the effect of tightness on wages in Germany by combining social security data with unusually rich information on vacancies and job seekers. Instrumental variable regressions reveal positive elasticities between 0.004 and 0.011, implying that higher tightness explains between 7 and 19 percent of the real wage increase between 2012 and 2019. In particular, tightness raised wages at the bottom of the wage distribution, contributing to the decline in wage inequality over the last decade.
