Are Wages in Southern Europe More Flexible? The Effects of Cohort Size on European Earnings

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1 DISCUSSION PAPER SERIES IZA DP No Are Wages in Southern Europe More Flexible? The Effects of Cohort Size on European Earnings Giorgio Brunello Charlotte Lauer September 2004 Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor

2 Are Wages in Southern Europe More Flexible? The Effects of Cohort Size on European Earnings Giorgio Brunello University of Padova, CESifo and IZA Bonn Charlotte Lauer ZEW Mannheim and ERMES Discussion Paper No September 2004 IZA P.O. Box Bonn Germany Phone: Fax: Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit company supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author.

3 IZA Discussion Paper No September 2004 ABSTRACT Are Wages in Southern Europe More Flexible? The Effects of Cohort Size on European Earnings We exploit the cross-country and time variation in the demographics and education structure in 11 European countries to study how cohort size has affected real earnings in Europe. When we pool the data of all countries, we find that cohort size has a negative and statistically significant effect on the earnings of the older cohorts aged between 35 and 54 but no statistically significant effect on the earnings of younger cohorts aged 20 to 34. The negative effect of cohort size on earnings is completely driven by Southern European countries, a result which we relate to institutional differences. While the share of individuals aged 20 to 34 in the population has declined in the EU11 by percent between 1991 and 2001, the share of individuals aged 35 and 54 has increased by 9.32 percent. Our estimates suggest that, as a consequence of these significant demographic changes, the real earnings of the younger cohorts have increased on average by a tiny 0.06 percent, while the earnings of the older cohorts have declined by 0.93 percent, a modest variation. JEL Classification: J11, J31 Keywords: cohort size, wages, Europe Corresponding author: Giorgio Brunello Department of Economics University of Padova Via del Santo Padova Italy Giorgio.brunello@unipd.it This paper has been produced within the TSER EDWIN Project, funded by the European Commission. We are grateful to Thomas Zwick and to audiences at the EDWIN meeting in Milan and Mannheim for comments and suggestions. The European Community Household Panel data used in this paper are from the December 2003 release (contract 14/99 with the Department of Economics, University of Padova). The usual disclaimer applies.

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Do Workers Really Benefit From Their Social Networks?

DISCUSSION PAPER SERIES IZA DP No 1282 Do Workers Really Benefit From Their Social Networks? François Fontaine September 2004 Forschungsinstitut zur Zukunft der Arbeit Institute for the Study of Labor