Using two data sets derived from German administrative data, including a linked employer-employee data set, we investigate the cyclicality of worker and job flows. The analysis stresses the importance of two-sided labour market heterogeneity in this context, taking into account both observed and unobserved characteristics. We find that small firms hire mainly unemployed workers, and that they do so at the beginning of an economic expansion. Later on in the expansion, hirings more frequently result from direct job-to-job transitions, with employed workers moving to larger firms. Contrary to our expectations, workers moving to larger firms do not experience significantly larger wage gains than workers moving to smaller establishments. Furthermore, our econometric analysis shows that the interaction of unobserved heterogeneities on the two sides of the labour market plays a more important role for employed job seekers than for the unemployed.

Using administrative data on individual workers’ employment history and firms, we investigate the cyclicality of worker flows on the German labour market. Focusing on heterogeneities on both sides of the labour market, we find that small firms hire much more workers from unemployment than large firms, and that they do so at the very beginning of an economic expansion. Later on in the expansion, overall hirings more frequently result from direct job‐to‐job transitions to larger firms. Transitions from unemployment to employment at large firms are generally found to be more (pro‐)cyclical. However, this stylized fact disappears when the composition of the workforce is controlled for.

Labor Market Entry Conditions, Wages and Job Mobility *Economic conditions at the time of labour market entry can induce wage differentials between workers entering the labour market at different points in time. While the existence and persistence of these entry wage differentials are well documented, little is known about their interaction with employees' mobility behaviour. This paper contributes to this research area by analyzing the interaction between job mobility and entry wage differentials using German administrative data. The results suggest that labour market entrants earning less than the average starting wage are more likely to change jobs, directly from employer to employer as well as indirectly via an unemployment spell. In addition they are more likely to change occupation. Moreover, job mobility tends to reduce the effects of labour market entry conditions, implying that job mobility operates as an adjustment mechanism that mitigates entry wage differentials. These results hold not only for high-skilled, but also for mediumskilled and unskilled workers.