Crowding-out of Unskilled Workers in the Business Cycle: Evidence from West Germany

Abstract

The paper addresses the question of if and how processes of cyclical crowding-out contribute to the disproportionate increase in unemployment of the less-educated during recessions. To this end, transitions from unemployment to low-skilled jobs and vice versa are analysed using data from the German Socio-Economic Panel (GSOEP). It is found that skilled workers increasingly occupy low-skilled jobs during recessions and thus diminish employment chances of unskilled persons. Specifically, the analyses show evidence for crowding-out at the worker inflow: during recessions, the chances of securing a low-skilled job deteriorate to a greater extent for unskilled people than for the skilled, suggesting that in times of poor employment prospects, job-competition between unskilled and skilled people for low-skilled jobs increases. However, the analysis does not show evidence for crowding-out at the worker outflow.