Extensive versus intensive margin in Germany and the United States: any differences?

Abstract

This article analyses the role of the extensive vis-à-vis the intensive margin of labour adjustment in Germany and in the United States. The contribution is twofold. First, we provide an update of older US studies and confirm the view that the extensive margin (i.e. the adjustment in the number of workers) explains the largest part in the overall variability in aggregate hours. Second, although the German labour market structure is very different from its US counterpart, the quantitative importance of the extensive margin is of similar magnitude.

Notes

¹Income taxes may, for example, have larger disincentive effects when the intensive margin plays an important role, as this may lead to a larger aggregate labour supply elasticity.

²See, for example, Langot and Quintero-Rojas (2008a, b) and Rogerson (2006). Note that all these papers use annual data for their analysis, while we employ quarterly data sets, which provide a better picture of the business cycle dynamics.

³Data for unified Germany are only available from 1991.

⁴However, there may be other reasons which call for a different modelling approaches. Gartner et al. (2009) showed for example, that the job-finding rate, vacancies and the market tightness are a lot more volatile in Germany than in the United States.

¹ Seasonal adjustment is based on the multiplicative Census X12-ARIMA method.