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Revisiting the German Wage Structure

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Author Info
Christian Dustmann () (University College London, CEPR, IFS and IZA)
Johannes Ludsteck () (IAB, Nuremberg)
Uta Schönberg () (University of Rochester and IZA)

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Abstract

This paper challenges the view that the wage structure in West-Germany has remained stable throughout the 80s and 90s. Based on a 2 % sample of social security records, we show that wage inequality has increased in the 1980s, but only at the top of the distribution. In the early 1990s, wage inequality started to rise also at the bottom of the distribution. Hence, while the US and Germany experienced similar changes at the top of the distribution throughout the 80s and 90s, the patterns at the bottom of the distribution are reversed. We show that changes in the education and age structure can explain a substantial part of the increase in inequality, in particular at the top of the distribution. We further argue that selection into unemployment cannot account for the stable wage structure at the bottom in the 80s. In contrast, about one third of the increase in lower tail inequality in the 90s can be related to de-unionization. Finally, fluctuations in relative supply play an important role in explaining trends in the skill premium. These findings are consistent with the view that technological change is responsible for the widening of the wage distribution at the top. The widening of the wage distribution at the bottom, however, may be better explained by episodic events, such as changes in labour market institutions and supply shocks.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2685.

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Length: 70 pages
Date of creation: Mar 2007
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Handle: RePEc:iza:izadps:dp2685

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Related research
Keywords: inequality; polarization; institutions;

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Find related papers by JEL classification:
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
D3 - Microeconomics - - Distribution
O3 - Economic Development, Technological Change, and Growth - - Technological Change

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  4. Dustmann; Christian & Schönberg, Uta, 2004. "Training and Union Wages," IZA Discussion Papers 1435, Institute for the Study of Labor (IZA). [Downloadable!]
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  5. Albrecht Glitz, 2006. "The Labour Market Impact of Immigration: Quasi-Experimental Evidence," CReAM Discussion Paper Series 0612, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London. [Downloadable!]
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  7. Murphy, Kevin M & Welch, Finis, 1992. "The Structure of Wages," The Quarterly Journal of Economics, MIT Press, vol. 107(1), pages 285-326, February. [Downloadable!] (restricted)
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  9. Thomas Lemieux, 2008. "The changing nature of wage inequality," Journal of Population Economics, Springer, vol. 21(1), pages 21-48, January. [Downloadable!] (restricted)
    Other versions:
  10. Daron Acemoglu, 2002. "Technical Change, Inequality, and the Labor Market," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 7-72, March. [Downloadable!] (restricted)
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  11. David Card & Thomas Lemieux & W. Craig Riddell, 2004. "Unions and Wage Inequality," Journal of Labor Research, Transaction Publishers, vol. 25(4), pages 519-562, October. [Downloadable!] (restricted)
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  13. Maarten Goos & Alan Manning, 2003. "Lousy and Lovely Jobs: the Rising Polarization of Work in Britain," CEP Discussion Papers dp0604, Centre for Economic Performance, LSE. [Downloadable!]
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  14. David Autor & Frank Levy & Richard Murnane, 2003. "The skill content of recent technological change: an empirical exploration," Proceedings, Federal Reserve Bank of San Francisco, issue Nov. [Downloadable!]
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  15. Richard Blundell & Amanda Gosling & Hidehiko Ichimura & Costas Meghir, 2007. "Changes in the Distribution of Male and Female Wages Accounting for Employment Composition Using Bounds," Econometrica, Econometric Society, vol. 75(2), pages 323-363, 03. [Downloadable!] (restricted)
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  16. Alexandra Spitz-Oener, 2006. "Technical Change, Job Tasks, and Rising Educational Demands: Looking outside the Wage Structure," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 235-270, April. [Downloadable!]
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  18. David Card & Thomas Lemieux, 2000. "Can Falling Supply Explain the Rising Return to College for Younger Men? A Cohort-Based Analysis," NBER Working Papers 7655, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. Emmanuel Saez & Michael R. Veall, 2005. "The Evolution of High Incomes in Northern America: Lessons from Canadian Evidence," American Economic Review, American Economic Association, vol. 95(3), pages 831-849, June. [Downloadable!]
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    Other versions:
  22. 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. [Downloadable!]
  23. repec:pal:imfstp:v:51:y:2004:i:2:p:7 is not listed on IDEAS
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  24. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 733-783, October. [Downloadable!]
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  25. Thomas Lemieux, 2006. "Post-Secondary Education and Increasing Wage Inequality," NBER Working Papers 12077, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  26. Patrick A. Puhani, 2003. "A Test of the ‘Krugman Hypothesis’ for the United States, Britain, and Western Germany," University of St. Gallen Department of Economics working paper series 2003 2003-13, Department of Economics, University of St. Gallen. [Downloadable!]
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  27. 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. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thomas Lemieux, 2008. "The changing nature of wage inequality," Journal of Population Economics, Springer, vol. 21(1), pages 21-48, January. [Downloadable!] (restricted)
    Other versions:
  2. Gernandt, Johannes & Pfeiffer, Friedhelm, 2006. "Rising Wage Inequality in Germany," ZEW Discussion Papers 06-19 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
    Other versions:
  3. Albrecht, James & Björklund, Anders & Vroman, Susan, 2009. "Unionization and the Evolution of the Wage Distribution in Sweden: 1968 to 2000," IZA Discussion Papers 4246, Institute for the Study of Labor (IZA). [Downloadable!]
  4. Marcus Tamm, 2009. "Child Benefit Reform and Labor Market Participation," Ruhr Economic Papers 0097, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
  5. Vona, Francesco & Consoli, Davide, 2009. "Innovation, human capital and earning distribution: towards a dynamic life-cycle approach," MPRA Paper 13032, University Library of Munich, Germany. [Downloadable!]
  6. Entorf, Horst & Tatsi, Eirini, 2009. "Migrants at School: Educational Inequality and Social Interaction in the UK and Germany," IZA Discussion Papers 4175, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Johannes Gernandt & Friedhelm Pfeiffer, 2008. "Wage Convergence and Inequality after Unification: (East) Germany in Transition," SOEPpapers 107, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
    Other versions:
  8. Jochen Michaelis & Alexander Spermann, 2009. "Geringqualifizierte Arbeit, Marktlöhne und Sozialpolitik: Konzepte für Deutschland," MAGKS Papers on Economics 200920, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung). [Downloadable!]
  9. Nicola Fuchs-Schuendeln & Dirk Krueger & Mathias Sommer, . "Inequality Trends for Germany in the Last Two Decades: A Tale of Two Countries," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics. [Downloadable!] (restricted)
    Other versions:
  10. Myck, Michal & Ochmann, Richard & Qari, Salmai, 2008. "Dynamics of Earnings and Hourly Wages in Germany," IZA Discussion Papers 3751, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  11. Carlin, Wendy & Soskice, David, 2007. "Reforms, Macroeconomic Policy and Economic Performance in Germany," CEPR Discussion Papers 6415, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Benjamin Balsmeier & Heiko Peters, 2008. "Family Background or the Characteristics of Children: What Determines High School Success in Germany?," SOEPpapers 138, DIW Berlin, The German Socio-Economic Panel (SOEP). [Downloadable!]
  13. Fitzenberger, Bernd, 2008. "Nach der Reform ist vor der Reform? Eine arbeitsökonomische Analyse ausgewählter Aspekte der Hartz-Reformen," ZEW Discussion Papers 08-011 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  14. Fitzenberger, Bernd, 2008. "Nach der Reform ist vor der Reform? Eine arbeitsökonomische Analyse ausgewählter Aspekte der Hartz-Reformen," ZEW Discussion Papers 08-011, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  15. Werner Eichhorst, 2007. "Der Arbeitsmarkt in Deutschland: Zwischen Strukturreformen und sozialpolitischem Reflex," IZA Discussion Papers 3194, Institute for the Study of Labor (IZA). [Downloadable!]
  16. Andreas Knabe & Ronnie Schöb, 2008. "Minimum Wage Incidence: The Case for Germany," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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