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East Germany's Wage Gap: A Non-Parametric Decomposition Based on Establishment Characteristics

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  • Bernd Görzig
  • Martin Gornig
  • Axel Werwatz

Abstract

East German wages have been below the West German wage level since unification. Moreover, the East-West wage gap implied by the contractual wages specified in collective wage agreements is drifting ever further apart from the wagegap in terms of effective wages. This paper looks at the role of establishment-specific factors - such as sectoral affiliation and size of the labour force - in this process. A non-parametric decomposition that has played a prominent rolein the gender wage-gap literature is applied to breakdown the East-West wage gap into its constituent components. Using establishment data from the German employment statistics, the paper demonstrates that the divergence betweenwage agreements and effective wages is probably not a consequence of a massive escape from collective wage agreements, or the intense use of opt-out clauses in such agreements in East Germany. Rather, the shift of East Germany's economic structure towards lower-paying types of companies has caused the lagging behind in the adjustment of wages.

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Bibliographic Info

Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 451.

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Length: 21 p.
Date of creation: 2004
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Handle: RePEc:diw:diwwpp:dp451

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Cited by:
  1. Rainer, Helmut & Siedler, Thomas, 2009. "Does democracy foster trust?," Munich Reprints in Economics, University of Munich, Department of Economics 19809, University of Munich, Department of Economics.
  2. Helmut Rainer & Thomas Siedler, 2006. "Does Democracy Foster Trust? Evidence from the German Reunification," Economics Discussion Papers, University of Essex, Department of Economics 613, University of Essex, Department of Economics.
  3. Bernd Görzig & Martin Gornig & Axel Werwatz, 2006. "Firm Specific Wage Spread in Germany - Decomposition of regional differences in inter firm wage dispersion," SFB 649 Discussion Papers SFB649DP2006-045, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  4. Kohn, Karsten & Antonczyk, Dirk, 2011. "The Aftermath of Reunification: Sectoral Transition, Gender, and Rising Wage Inequality in East Germany," IZA Discussion Papers 5708, Institute for the Study of Labor (IZA).

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