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Development of Wage Inequality for Natives and Immigrants in Germany: Evidence from Quantile Regression and Decomposition

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  • Heiko Peters

Abstract

To study the development of wage inequality is important for the economic performance as well as for the development of employment. First, I estimate the remuneration to personal characteristics for Germans and immigrants across the wage distribution using quantile regression. My database is the German socio-economic panel for the period 1984-2006. I find a higher inequality between skill groups for Germans relative to immigrants. The returns to skill for the highest educational attainment are higher for Germans across the wage distribution compared to immigrants. But within-group inequality for the group with the highest educational attainment is higher for immigrants. Both groups have concave experience-earnings profiles. One more year of work experience increases the wage more for Germans. Secondly I use the decomposition method of Melly (2006). Decomposition methods are suitable to get further insights into the question as to whether or not the observable differences in the distribution are caused by the difference in the composition or differences in the estimated coefficients. Immigrants have a negative wage gap relative to Germans. The wage gap rises across the distribution and is due to a rising discrimination of immigrants across the wage distribution for the years 1992 and 2006. For the year 1984 the characteristic effect is responsible for the wage gap. Inequality rises for both groups between the year 1992 and 2006. The increase is much stronger for Immigrants. The coefficient effect is mainly responsible for the wage increase across time for both groups.

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Bibliographic Info

Paper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 113.

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Length: 26 p.
Date of creation: 2008
Date of revision:
Handle: RePEc:diw:diwsop:diw_sp113

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Keywords: Wage inequality; immigrants; Germany; decomposition; quantile regression;

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  1. Krueger, Alan B. & Pischke, Jörn-Steffen, 1992. "A comparative analysis of East and West German labor markets before and after unification," ZEW Discussion Papers 92-11, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  3. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
  4. Kohn, Karsten, 2006. "Rising Wage Dispersion, After All! The German Wage Structure at the Turn of the Century," IZA Discussion Papers 2098, Institute for the Study of Labor (IZA).
  5. Gernandt, Johannes & Pfeiffer, Friedhelm, 2006. "Rising Wage Inequality in Germany," ZEW Discussion Papers 06-19, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Eswar Prasad, 2000. "The Unbearable Stability of the German Wage Structure," IMF Working Papers 00/22, International Monetary Fund.
  7. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, July.
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Cited by:
  1. Alisher Aldashev & Johannes Gernandt & Stephan L. Thomsen, 2012. "The Immigrant-Native Wage Gap in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 232(5), pages 490-517, September.
  2. Kamil DYBCZAK & Kamil GALUSCAK, 2013. "Changes in the Czech Wage Structure: Does Immigration Matter?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(2), pages 108-128, May.
  3. Thomas Grandner & Dieter Gstach, 2012. "Decomposing wage discrimination in Germany and Austria with counterfactual densities," Department of Economics Working Papers wuwp145, Vienna University of Economics, Department of Economics.

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