Career Progression, Economic Downturns, and Skills

This paper analyzes the career progression of skilled and unskilled workers, with a focus on how careers are affected by economic downturns, and whether formal skills, acquired early on, are able to shield workers from the effect of recessions. We estimate a dynamic life-cycle model of education choice, labor supply and wage progression using detailed administrative data for Germany for numerous birth cohorts across different regions, following workers from labor market entry onwards. The model allows for labor market frictions that vary by skill group and over the business cycle. We find that sources of wage growth differ, with learningby-doing being an important component early on for unskilled workers, whereas job mobility is important for workers who acquire skills in an apprenticeship scheme before labor market entry. Economic downturns affect skill groups through very different channels: unskilled workers loose out from a decline in productivity and human capital, whereas skilled individuals suffer mainly from a lack of mobility.