How Acid are Lemons? Adverse Selection and Signalling for Skilled Labour Market Entrants

This paper jointly analyses the consequences of adverse selection and signalling on entry wages of skilled employees. It uses German linked employer employee panel data (LIAB) and introduces a measure for relative productivity of skilled job applicants based on apprenticeship wages. It shows that post-apprenticeship employer changers are a negative selection from the training firms’ point of view. Negative selection leads to lower average wages of employer changersin the first skilled job in comparison to stayers. Entry wages of employer changers are specifically reduced by high occupation and training firm retention rates. Additional training firm signals are high apprenticeship wages that signal a positive selection of apprenticeship applicants, works councils and establishment size. Finally, positive individual signals such as schooling background affect the skilled entry wages of employer changers positively. ♣ Corresponding author, E-mail: [email protected], address: LMU, Munich School of Management, Ludwigstr. 28/RG, D-80539 Munich. We use data provided by the Forschungsdatenzentrum der BA am IAB (FDZ), Nuremberg. The data basis of this publication is the LIABlongitudinal (version 2) sample of the IAB (years 1993-2007). We thank Uschi Backes-Gellner, Christian Dustmann, Edward Lazear, Jens Mohrenweiser, Paul Ryan, Uta Schönberg, and Till von Wachter for helpful comments. Data access was provided via guest research spells at FDZ and afterwards via controlled data remote access at the FDZ.