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Dynamics of Earnings and Hourly Wages in Germany

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  • Michal Myck
  • Richard Ochmann
  • Salmai Qari

Abstract

There is by now a vast number of studies which document a sharp increase in crosssectional wage inequality during the 2000s. It is often assumed that this inequality is of a "permanent nature" which in turn is used as an argument calling for government intervention. We examine these claims using a fully balanced panel of full-time employed individuals in Germany from the German Socio-Economic Panel for the years 1994-2006. In line with previous studies, our sample shows sharply rising inequality during the 2000s. Applying covariance structure models, we calculate the fraction of permanent and transitory wage and earnings inequality. From 1994 on, permanent inequality increases continuously, peaks in 2001 and then declines in subsequent years. Interestingly the decline in the permanent fraction of inequality occurs at the time of most rapid increases in cross-sectional inequality. It seems therefore that it is primarilythe temporary and not the permanent component which has driven the strong expansion of cross-sectional inequality during the 2000s in Germany.

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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 139.

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Length: 25 p.
Date of creation: 2008
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Handle: RePEc:diw:diwsop:diw_sp139

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Keywords: Variance decomposition; covariance structure models; earnings inequality; wage dynamics;

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Cited by:
  1. Aedín Doris & Donal O’Neill & Olive Sweetman, 2013. "Identification of the covariance structure of earnings using the GMM estimator," Journal of Economic Inequality, Springer, Springer, vol. 11(3), pages 343-372, September.
  2. Giesecke, Matthias & Bönke, Timm & Lüthen, Holger, 2011. "The Dynamics of Earnings in Germany: Evidence from Social Security Records," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis, Verein für Socialpolitik / German Economic Association 48692, Verein für Socialpolitik / German Economic Association.

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