Dualism in the German Labor Market?A Nonparametric Analysis with Panel Data

A bstract . Orthodoxy in economics gives pride of place to the hypothesis of compensating differentials. Applied to job quality criteria, such as wage levels, job stability, and wage growth, the compensating differentials hypothesis implies that negative or positive job quality characteristics should— ceteris paribus —rarely coincide. Originating in the late 1960s from studies of American inner-city labor markets, dualist labor market theory has raised doubts about this assumption. At its core, dualist analysis proposes that a dualism exists between a primary' labor market where "jobs possess several of the following traits: high wages, good working conditions, employment stability and job security, equity and due process in the administration of work, and chances for advancement" and a secondary market where jobs "tend to involve low wages, poor working conditions, considerable variability in employment, and little opportunity to advance" (Doeringer and Piore 1971). In the 1980s, there were several attempts to apply dual or segmented labor market theory to European economies, including the German labor market. The mixed findings of these analyses have cast doubt upon the transferability of dualist theory to these contexts.