"Despite the ongoing discussion on labor shortage in the German economy there is still a lack of empirical analyses of this problem based on adequate econometric methods. The paper explores the determinants of labor shortage in the environmental sector supplying products and services that help to reduce environmental impacts and energy use. Labor shortages occur when the price adjustment mechanism is too slow to balance labor demand and supply. The empirical analysis of labor shortage uses recent data of the establishment panel of the Institute for Employment Research in Nuremberg. A descriptive analysis shows that the environmental sector seems to be over-proportionally affected by labor shortage. Following the results of an econometric analysis innovative firms are significantly more likely to be characterized by labor shortage problems. For climate protection technologies, analytics/consulting or environmental research and development labor shortage seems to result from the respective innovative activities of the firms requiring highskilled and specialized staff whereas labor shortage in the recycling sector is due to a lack of low-paid personnel. Further econometric estimations show that firms characterized by labor shortage problems are significantly more likely to pay wages above average."

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