Aggregate Unemployment Decreases Individual Returns to Education

On the basis of a theoretical model, we argue that higher aggregate unemployment affects individual returns to education. We therefore include aggregate unemployment and an interaction term between unemployment and the individual education level in a standard Mincer equation. Our results show that an increase in regional unemployment by 1% decreases the returns to education by 0.005 percentage points. This implies that higher skilled employees are better sheltered from labour market changes with respect to their jobs but encounter larger wage changes than less skilled employees. Differences in regional unemployment can in addition almost fully explain the observed large differences in regional returns to education. We use representative individual data and regional panel variation in unemployment between different German regions and for different employee groups. We demonstrate that our results are robust with respect to aggregation bias, time lags and potential endogeneity of the unemployment variable

Do higher corporate taxes reduce wages? : Micro evidence from Germany

Because of endogeneity problems very few studies have been able to identify the incidence of corporate taxes on wages. We circumvent these problems by using an 11-year panel of data on 11,441 German municipalities' tax rates, 8 percent of which change each year, linked to administrative matched employer-employee data. Consistent with our theoretical model, we find a negative effect of corporate taxation on wages: a 1 euro increase in tax liabilities yields a 77 cent decrease in the wage bill. The direct wage effect, arising in a collective bargaining context, dominates, while the conventional indirect wage effect through reduced investment is empirically small due to regional labor mobility. High and medium-skilled workers, who arguably extract higher rents in collective agreements, bear a larger share of the corporate tax burden