This thesis provides important empirical evidence on the German labor market which faces tremendous challenges by ongoing demographic changes. With an expected decrease in its labor force and an aging society, Germany has to find ways to maintain its economic stability and the functioning of its welfare state. Two possible solutions are discussed: immigration – especially of highly skilled immigrants – and investments in human capital that allow individuals to find better paying and more stable jobs. Section 2 addresses the question to what extent immigrants are able to overcome initial wage disadvantages vis-à-vis comparable natives. Adding to the extant literature on this topic, the analysis particularly takes into account differences between skill groups and how these differences may be responsible for different wage assimilation patterns. The results show that highly skilled immigrants are not able to catch up with their native peers in terms of wages, while the initial wage gap between low/medium skilled immigrants and natives narrows over time. This can be in part explained by theoretical considerations such as Merton’s (1968) theory of cumulative advantages or may simply be the result of employers’ discrimination against immigrants, e.g., by hindering the promotion of immigrants into better paying jobs (“glass ceilings”). Section 3 also refers to Merton’s (1968) theory of cumulative advantages and looks at one of the sources of initial disparities between immigrants and natives, i.e., the occurrence of youth unemployment. As Burgess (2003) points out, youth unemployment has long-lasting negative consequences particularly for lower skilled individuals. The analysis in Section 3 thus considers only graduates from lower and intermediate secondary schools, i.e., Hauptschule and Realschule. By using proportional hazard models I show that controlling for individual, parental, and regional background can only explain part of the difference in the risk of becoming unemployed between immigrants and natives. However, second generation immigrants of Turkish origin, an especially vulnerable group also in other countries, stand out as the group with the highest unemployment risk, ceteris paribus. While immigration offers one possible solution to address Germany’s demographic challenges, increasing the overall skills of its population may be another means to help alleviate the economic pressure caused by the shortage of skilled labor. Germany’s vocational training system is often praised for its effectiveness in providing young adults with the necessary human capital to smoothly enter the labor market (e.g., Heckman, 1994). In addition, Germany’s “dual system” (duales System) is seen as being largely responsible for the low youth unemployment rates in Germany compared to other Western countries. This thesis investigates the extent to which human capital investments, e.g. in form of apprenticeship or vocational training, are beneficial with respect to labor market outcomes early in individuals’ careers. Using a sample of 25 years old East and West German youths who graduated from lower or intermediate secondary school, i.e., Hauptschule or Realschule, Section 4 examines the returns to apprenticeship and vocational training (AVT) regarding three early labor market outcomes: non-employment, fulltime employment, and wages. As predicted by Becker’s (1964) human capital theory, AVT is beneficial with respect to all three outcomes. AVT graduates have c.p. significantly lower risks of non-employment, significantly higher propensities of having a fulltime permanent job, and they earn significantly higher wages than their peers without a vocational degree. Interestingly, we find no significant differences in the returns between apprenticeship degrees and degrees from other forms of vocational training at an early stage in young persons’ careers. Despite differences in general economic conditions, returns to AVT do not differ between East and West Germany. They also show no significant decline over time even in light of an ongoing educational expansion that leads to an increase in the share of graduates from higher secondary schools.
