Alda, Friedrich and Rohrbach-Schmidt (2020) analyzed about 2.34 million administrative earnings records for young male full-time employees in West Germany between 1976 and 2010 and found no credential inflation for high qualifications, but observed that the wage position of university graduates may have begun to weaken after 2006, leaving open whether this marks the start of credential inflation for higher education or only a temporary response to institutional reforms and the financial crisis. The unresolved problem is whether the university wage premium in Germany has in fact entered a persistent, expansion-driven decline, and through which mechanism. Answering it requires jointly extending the long-run premium analysis beyond 2010, to women, older workers, and the growing group combining an Abitur with vocational training, and decomposing trends across detailed occupations and job-task compositions. Later work has documented a modest, statistically insignificant post-2012 softening of university wage differentials in SOEP data (1996-2019) and separate analyses of the Abitur-plus-VET group and of task-based wage returns, but no study extends the long administrative series past 2010 or causally decomposes the trend, so the core question remains open.

Background

Western economies have expanded education continuously for decades, and a central question of labor economics and the sociology of education is what this does to wages. The educational wage premium is the (regression-adjusted) log wage differential between holders of a qualification and a reference group, typically lower secondary or vocational qualifications. Three competing accounts predict different fates for premiums as the supply of educated workers grows. Routine-biased technological change (RBTC) holds that automation replaces routine tasks and complements analytic, non-routine tasks, so demand for highly educated workers keeps rising with supply and high-skill premiums hold or grow. Positional competition, or credential inflation, treats education partly as a positional good whose value depends on relative standing: once a qualification becomes common, its holders' relative wage must fall. Social closure theory predicts that occupational groups able to control access to their occupation (via licenses, standardized training, or internal labor markets) can protect their members' wage rents even as education expands.

The German case is particularly informative because its vocational system is strong and institutionally differentiated. The Abitur is the academically oriented upper-secondary school-leaving certificate that qualifies holders for university entrance. Most young people instead enter dual vocational education and training (VET), an apprenticeship combining firm-based training with part-time vocational school, and a growing hybrid group completes an Abitur and then a VET apprenticeship rather than going to university. Occupation-specific advanced vocational certificates (Aufstiegsfortbildung, such as master craftsman) form a further, non-university tertiary tier. Müller and Shavit's segmentation logic distinguishes 'general' occupational segments, where skills are generic and credentials are the sorting device, from 'specific' segments, where skills are occupation-specific and access is institutionally regulated.

Alda, Friedrich and Rohrbach-Schmidt (2020) tested these accounts on the Sample of Integrated Labour Market Biographies (SIAB), a 2-percent administrative sample of German social-insurance employment records covering roughly 2.34 million earnings biographies. Because SIAB contains only socially insured employees, the analysis was restricted to young male full-time employees in West Germany between 1976 and 2010, with occupations classified into the general and specific segments. Their central findings were: no credential inflation for high qualifications; negative effects of educational expansion on the returns to medium- but not high-level skills, matching the predictions of routine-biased technological change; and segment differences, with social-closure mechanisms apparently buffering vocational graduates' premiums in the specific segment while premiums worsened over time in the general segment.

The authors, however, could not establish what the last years of their series mean. The wage position of university graduates appeared to weaken after 2006, but the observation window ended in 2010, so the data could not distinguish the onset of credential inflation for high qualifications from a transitory dip caused by the 2008-09 financial crisis and concurrent institutional changes (the Bologna restructuring of degree programs and regional tuition-fee episodes). They also explicitly left three related gaps: returns for women, older workers, civil servants, and the self-employed (the latter two invisible in social-insurance data); the wage trajectories of the growing Abitur-plus-VET group, which their design aggregated with other VET graduates; and heterogeneity within the broad general/specific segments, for which they called for more detailed occupational and task-based analyses.

Subsequent work has begun to fill parts of these gaps. SOEP (the German Socio-Economic Panel, a household survey covering all employee groups including civil servants) based estimates show university wage differentials peaking around 2012 and softening modestly thereafter through 2019, a decline of roughly 0.045 log points (about ten percent) that is not statistically significant. Task-based studies of graduate jobs and of job-task wage returns exist for Germany through 2012-2018, and the Abitur-plus-VET group has received dedicated cross-sectional analysis. In the United Kingdom, by contrast, the college wage premium of workers in their mid-twenties has fallen sharply across recent cohorts, showing that a genuine young-graduate premium decline is possible in a comparable economy. What no study has done is extend the long German premium series past 2010 and connect the trajectory to its mechanism.

Problem Statement

Determine whether the wage position of university graduates in Germany has entered a persistent decline after 2006 - that is, whether ongoing educational expansion is now producing credential inflation for high qualifications - or whether the weakening visible at the end of the 1976-2010 administrative series was a transitory response to institutional reforms (the Bologna restructuring, tuition-fee episodes) and the 2008-09 financial crisis, with the demand for graduate skills still absorbing the expanding supply. This single objective is jointly served by four linked components: (1) extending the estimated university wage premium relative to vocational reference groups beyond 2010, into the 2010s and beyond, and testing whether the post-2006 weakening is persistent and statistically robust rather than a temporary episode; (2) establishing how these returns developed for women and older workers, and - where data beyond social-insurance records permit - for civil servants and the self-employed; (3) analyzing separately the wage trajectories of the growing group combining an Abitur with vocational training, which may follow neither the VET-only nor the university pattern; and (4) decomposing the trends across detailed occupations and job-task compositions to identify the mechanism: supply-driven positional devaluation, technology-driven task change, changes in the composition of expanding graduate cohorts (subject mix, bachelor degrees, self-selection of marginal entrants), or institutionally protected occupational rents. The problem is solved when the post-2006 trajectory of the university wage premium is established for these populations and its source is identified with evidence sufficient to distinguish the competing accounts.

References

  1. Holger Alda, Anett Friedrich, Daniela Rohrbach-Schmidt (2020), 'Educational expansion and educational wage premiums of young male employees: A long-term analysis for West Germany 1976-2010', Social Science Research 85:102351, DOI 10.1016/j.ssresearch.2019.102351, https://doi.org/10.1016/j.ssresearch.2019.102351
  2. Anett Friedrich, Sandra Hirtz (2021), 'Occupation-specific wage returns: shedding light on differentials between employees with a VET degree either with or without an Abitur', Empirical Research in Vocational Education and Training 13:6, DOI 10.1186/s40461-021-00111-5, https://doi.org/10.1186/s40461-021-00111-5
  3. Anett Friedrich, Sandra Hirtz (2021), 'Same educational level, same wage returns? An analysis over time and across occupations in Germany', Journal of Education and Work 34:632-648, DOI 10.1080/13639080.2021.1965967, https://doi.org/10.1080/13639080.2021.1965967
  4. Jessica Ordemann, Friedhelm Pfeiffer (2022), 'The evolution of educational wage differentials for women and men in Germany, from 1996 to 2019', Journal for Labour Market Research 56:17, DOI 10.1186/s12651-022-00323-6, https://doi.org/10.1186/s12651-022-00323-6
  5. Anja Hall (2021), 'Alles beim Alten? Bildungserträge höherer beruflicher und akademischer Abschlüsse vor und nach Bologna', Kölner Zeitschrift für Soziologie und Sozialpsychologie 73:527-553, DOI 10.1007/s11577-021-00808-1, https://doi.org/10.1007/s11577-021-00808-1
  6. Anja Hall (2021), 'Sind Abiturientenberufe immer von Vorteil? Schulbildungsbezogene Segmentation in der Ausbildung und überqualifizierte Beschäftigung bei Männern und Frauen', Zeitschrift für Soziologie 50:224-240, DOI 10.1515/zfsoz-2021-0016, https://doi.org/10.1515/zfsoz-2021-0016
  7. Golo Henseke (2018), 'Against the Grain? Assessing Graduate Labour Market Trends in Germany Through a Task-Based Indicator of Graduate Jobs', Social Indicators Research 141:809-840, DOI 10.1007/s11205-018-1839-x, https://doi.org/10.1007/s11205-018-1839-x
  8. Daniela Rohrbach-Schmidt, Caroline Wehner, Sabine Krueger, Christian Ebner (2023), 'Wage returns to job tasks and personality traits in Germany', International Journal of Manpower 44:55-71, DOI 10.1108/ijm-01-2022-0038, https://doi.org/10.1108/ijm-01-2022-0038
  9. Filiz Koneberg, Daniela Rohrbach-Schmidt, Anett Friedrich (2025), 'Skill profiles of training occupations and occupational segmentation of vocational education and training in Germany', Journal of Vocational Education & Training 78:331-349, DOI 10.1080/13636820.2025.2549887, https://doi.org/10.1080/13636820.2025.2549887
  10. Golo Henseke, Alan Felstead, Duncan Gallie, Francis Green (2024), 'Degrees of demand: a task-based analysis of the British graduate labour market', Oxford Economic Papers 77:144-165, DOI 10.1093/oep/gpae020, https://doi.org/10.1093/oep/gpae020
  11. Gianna Boero, Tej Nathwani, Robin Naylor, Jeremy Smith (2024), 'The college wage premium in the UK: decline and fall?', Oxford Economic Papers (advance article), DOI 10.1093/oep/gpae014, https://doi.org/10.1093/oep/gpae014
  12. Irene Kriesi, Fabian Sander (2024), 'Academic or vocational education? A comparison of the long-term wage development of academic and vocational tertiary degree holders', Journal for Labour Market Research 58:10, DOI 10.1186/s12651-024-00368-9, https://doi.org/10.1186/s12651-024-00368-9