Education, Skills, and the Labour Market

It is undisputed that the human capital of a nation accumulated through schooling and lifelong learning is crucially important to the economy’s innovative capacity and ability to compete in the globalized world of the 21st century. At the individual level, human capital can be regarded as skills that make workers more productive in performing their work tasks and as the knowledge and competencies that enable people to generate and adopt new ideas that spur innovation. At the macroeconomic level, human capital can accelerate economic growth by increasing aggregate productivity and by facilitating the creation and diffusion of new technologies. 

One stream of research in this group deals with the formation of skills. The focus is on family background, formal education, and on-the-job training as determinants of skill development. In terms of family influences, we see substantial intergenerational persistence between parents and children in income, educational attainment, and occupational choices. One source of this persistence is the intergenerational transmission of cognitive skills, as we show using unique Dutch data that link comparable measures of math and language skills over generations. However, family circumstances are not “self-inflicted” and are beyond the control of the individual; Nobel laureate James J. Heckman coined them “accident of birth”. Thus, differences in family background and support are a source of inequality – the lack of equality of opportunity. We study the effectiveness of policies to support children and youths from disadvantaged families, in particular, early child care and mentoring programmes. However, one fundamental challenge with formally non-selective programmes such as universal child care is that disadvantaged families are often less able to access and utilize these programmes. In a series of field experiments, we investigate why disadvantaged families are underrepresented in such programmes, focusing on both demand side reasons (e.g., lack of information or difficulties navigating complex application processes) and supply side reasons (e.g., discrimination of educational providers).

Related to our research on economic inequality at the individual level, we also study inequality at the regional level. Regional economic disparities, to a large extent driven by firms located in certain regions, can promote other forms of regional disparities. One such dimension in many western societies is the rise of radical right parties since the late 1980s. We contribute to this discussion by trying to understand the role of firm- und regional-level adjustments to globalization and technological change at the disaggregated European level. Particularly, we study how these significant economic changes affect vote shares of populist and nationalist parties because of the economic hardship caused by these phenomena. 

Of particular interest in this research group is the intersection of labour market, education, and innovation research. As technology is changing the tasks workers perform at the job, automating certain tasks and introducing new tasks in which humans have a comparative advantage, the skills required from workers also change. A series of research projects aims at improving our understanding of the interplay between technology, skill supply, and skill demand. For instance, we derive novel measures of worker skills by exploiting the unique setting of the German apprenticeship system, which mandates that the same practical and theoretical skills are developed in a particular apprenticeship regardless of the training location in Germany. Linking these skill measures to rich administrative labour market data, we estimate the returns to various types of skills developed during apprenticeship training, such as cognitive, social, digital, and manual skills. Moreover, the analysis of apprenticeship plan updates will be informative about which types of skills have become more (or less) important over time, and how this interacts with the tasks that new technologies are able to perform. Furthermore, merging workers’ skill supply from apprenticeship plans with firms’ skill demand from online job vacancies allows us to investigate whether returns to skills are systematically higher in firms which require these skills. This will shed light on the complementarities between technologies and skills.

We also investigate the differences in entrepreneurship and business dynamism and their respective contributions to growth between the United States and Germany, particularly focusing on the significance of startups. While startups in the United States are well-known for their innovation and radical advancements, evidence suggests that Germany's innovation is more concentrated within established firms (i.e., incumbents). In a comparative analysis between Germany and the United States, we aim to delve into the preferences of high-skilled individuals for working in startups (vs. incumbents), to better understand the factors influencing startup activity and success in both countries. In addition to the Germany-U.S. comparison, we will also shed light on the question to what extent the relatively low entrepreneurship rate in East Germany can be explained by individuals’ tastes for working in a startup. Starting from the observation that Germany is highly innovative and competitive despite having few startups, we then discuss how the German economy still maintains high levels of innovativeness and competitiveness.

Workpackage 1: (Unequal) Access to Education and the Formation of Skills

Workpackage 2: Returns to Skills

Workpackage 3: Innovation and Business Dynamism in Germany and the United States