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On the Post-Unification Development of Public and Private Pay in Germany

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Author Info
Axel Heitmueller () (London Business School and IZA Bonn)
Kostas Mavromaras (University of Aberdeen and IZA Bonn)

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Abstract

German post-unification in the 1990s is a period that was marked by substantial economic change, part of which was East German wages building towards the much higher West German levels. This paper studies the public-private pay gap in the fast changing economic and political environment of the 1990s using panel estimation techniques which control for unobserved individual heterogeneity. It shows that, while the overall pay gap between public and private sector stayed remarkably constant in the West, earnings differences in the East increased threefold in the late 1990s resulting in a substantial wage premium in the public sector. It is suggested that this premium is a result of the politically induced gap between pay and actual productivity. Furthermore, results vary greatly by gender indicating significantly larger female earnings differentials. Several institutional and political arguments are presented to explain this phenomenon.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1696.

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Length: 21 pages
Date of creation: Jul 2005
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Handle: RePEc:iza:izadps:dp1696

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Related research
Keywords: public-private sector pay differential; decomposition; Germany;

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Find related papers by JEL classification:
J78 - Labor and Demographic Economics - - Labor Discrimination - - - Public Policy (including comparable worth)
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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References listed on IDEAS
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  1. M. Burda & C. Schmidt, . "Getting Behind The East-West Wage Differential: Theory and Evidence," Sonderforschungsbereich 373 1997-77, Humboldt Universitaet Berlin.
  2. Dustmann, Christian & van Soest, Arthur, 1998. "Public and private sector wages of male workers in Germany," European Economic Review, Elsevier, vol. 42(8), pages 1417-1441, September. [Downloadable!] (restricted)
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  3. Christian Dustmann & Arthur Van Soest, 1997. "Wage structures in the private and public sectors in West Germany," Fiscal Studies, Institute for Fiscal Studies, vol. 18(3), pages 225-247, August. [Downloadable!]
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This page was last updated on 2009-11-30.

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