PUB - Publikationen an der Universität Bielefeld

In flexibilized labor markets discontinuous employment increases. Nevertheless, a theory-guided analysis is missing that explains why wage inequalities vary between employees who were recalled, workers who were reemployed by another employer, and employees in continuous employment relationships. Following Sørensen (2000), we test his theory of rent production and identify rent-seeking reemployment decisions of employers and employees as an inequality-generating mechanism. We use process-generated administrative data from German social security records that covers the time period 1975 to 2008. We were able to show that recalls are beneficial for employers because they capture a part of the employees’ composite rent by dismissing and recalling them. Employees lose income due to unemployment and never recover the income they could have gained if they had not have been dismissed. Nevertheless, employees also gain advantages through recalls, because they receive higher post-reemployment wages than employees who moved to another employer. This is because former employers provide higher returns on tenure and credentials for people who wait for a recall. In contrast, employees who were dismissed and reemployed in a new firm suffer higher short-term wage losses than recalled employees, but are able to gain long-term income benefits by increasing returns to work experience.