Training or Retiring? How Labor Markets Adjust to Trade and Technology Shocks
Bertermann, Dauth, Suedekum & Woessmann: "Training or Retiring? How Labor Markets Adjust to Trade and Technology Shocks" CRC Discussion Paper No. 551
How do labor markets adjust to structural change? While much research documents the employment and wage effects of trade and automation, the specific mechanisms through which adjustment occurs remain far less understood. A new study by Alexander Bertermann (ifo Institute), Wolfgang Dauth (Institute for Employment Research), Jens Suedekum (DICE, Heinrich-Heine-Universität Düsseldorf), and Ludger Woessmann (University of Munich, Project A06) investigates two such mechanisms in German local labor markets between 1994 and 2014: skill upgrading through formal training and labor market exit through early retirement. The findings reveal a complex interplay between productivity-enhancing and productivity-reducing adjustments, challenging simplistic interpretations of labor market resilience.
The analysis combines training participation data from the German Microcensus with detailed early retirement measures constructed from administrative employment records. This allows the authors to trace how local labor markets respond to three distinct shocks: rising import competition, expanding export opportunities, and the adoption of industrial robots.
The results reveal striking heterogeneity. Robot adoption increases training participation, but not in manufacturing, where robots are actually deployed. Instead, skill upgrading occurs in local service industries, suggesting that automation generates positive spillovers to complementary sectors such as professional services, which expand alongside rising manufacturing productivity. At the same time, robot exposure significantly raises early retirement rates among manufacturing workers, revealing a displacement channel that operates through direct transitions to retirement rather than through unemployment.
Trade shocks exhibit clear asymmetries. Export expansion spurs training investment and delays retirement, consistent with firms and workers investing in market-specific skills when opportunities arise. Import competition produces the opposite pattern: training declines and early retirement accelerates, particularly through the “golden handshake” pathway where unemployment benefits bridge the gap to pension eligibility. Crucially, the evidence suggests that negative shocks constrain human capital investment precisely when adjustment needs are greatest – firms and workers facing import competition do not use skill upgrading as a buffer against adverse conditions.
What do these findings imply for policy? First, adjustment mechanisms differ fundamentally across shock types - policies designed for trade displacement may not fit automation. Second, early retirement serves as an important adjustment margin, but one that shifts private adjustment costs onto public pension systems during periods of economic stress. Third, the intersectoral spillovers from robot adoption indicate that local labor market effects extend well beyond directly affected industries, suggesting that training policies should adopt a scope that reaches beyond directly impacted sectors.
Structural change, the authors conclude, induces both productivity-enhancing and productivity-reducing responses. Firms and workers employ these adjustment mechanisms in intricate, shock-specific ways, a complexity that simple narratives of labor market adaptation fail to capture.
Link (pdf): Training or Retiring? How Labor Markets Adjust to Trade and Technology Shocks
