Hourly Wages in Lower Deciles No Longer Lagging behind When It Comes to Wage Growth

For many years, only better-paid workers benefited from Germany’s real wage increases. In contrast, dependent employees with lower hourly wages suffered substantial losses, while the low-wage sector expanded. Around 2010, these trends came to an end. Now all wage groups benefit from wage increases—even if those in the middle of the distribution lag somewhat behind. At the very least, this new pattern means that the gap between high and low wages is not getting wider. This development is kind of surprising, as the labor market is shifting to higher-skilled jobs. Workers with higher hourly wages are still doing relatively well when it comes to wage developments; this applies not only to the long-term trend, but also to the recent developments. A longitudinal analysis based on data from the Socio-Economic Panel (SOEP) shows that with time, a large share of low-wage workers were able to earn much higher hourly wage rates. For example, more than half of those workers whose wages were in the bottom 20 percent in 2010, and who were still dependently employed in 2015, were no longer among the low-wage workers. Full-time employees in this group experienced stronger increases. Overall, the results show that hourly wages have been increasing consistently in real terms since the financial crisis and that the growth has been more evenly distributed than it was before. Nevertheless, the increases since 2010 have not made up for the real wage losses incurred by workers who were in the bottom 40 percent 15 years earlier.