Are Wages in Germany Responsive to Skilled Labor Shortages?

In Germany, however, wage levels, career choices and career changes are all influenced by a wide range of factors.Using panel data with a high differentiation by occupation, the present study shows that pay levels in Germany do indeed respond to skilled labour shortages, though they respond more strongly in occupations involving highly complex tasks than in those where the requirements are less stringent. Yet the lack of skilled workers is only one of many factors influencing pay levels. Wage setting is not completely free, being restricted by workers’ productivity and the willingness of customers to pay for goods and services. Furthermore, wages are often not negotiated individually but regulated by collective agreements. Establishing wage levels in Germany is the responsibility of a strong partnership between the two sides of industry. If wages are to be more closely aligned with the availability of skills, more weight needs to be given to such scarcities in the collective bargaining process. Were collective agreements to leave scope for companies to pay premiums, it would be easier for firms in sectors with skilled labour shortages to offer an effective wage above the union rate. It would make both economic and theoretical sense to gear wage increases more closely to the supply of skilled workers than has been the case so far. In occupations where skilled workers are in short supply and – as with many core industrial professions - wage levels are already high, the lack of skilled workers may equally be caused by career choices and the career guidance available in the education system. Here, information on occupations in high demand should be expanded by means of even broader and more practical career counselling.