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Wage Growth and Inequality Change During Rapid Economic Transition

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Author Info

  • Ira N. Gang

    ()
    (Rutgers University)

  • Robert C. Stuart

    ()
    (Rutgers University)

  • Myeong-Su Yun

    ()
    (Tulane University)

Abstract

East Germany, a unique socialist command economy prior to the 1990s, underwent rapid transition to a market-oriented economic system. This transition has been of intense interest given the environment of Eastern Germany vis-a-vis Western Germany, a setting different from most other transition economies. However, changes in the Eastern wage structure during transition demonstrates considerable similarity to that occurring in other transition economies. During the course of this transition, East Germany experienced big increases in both its wage level and wage dispersion. From 1990 to 2000 real wages in East Germany for men aged 20-60 rose by 118%, while various inequality measures indicate an increase in wage inequality of 25 to 61%. This paper studies the causes of this growth in wages and the changes in wage inequality, the first two moments of the wage distribution. We find that changes in the wage structure due to the transition explains most of wage growth and inequality change in East Germany. Most of the increases occur at the beginning of the transition. We compare our 1990-2000 results for East Germany to West German wage earners during the same period in order to investigate whether convergences took place in terms of mean (level) and dispersion (inequality).

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200631.

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Length: 20 pages
Date of creation: 01 Dec 2006
Date of revision:
Handle: RePEc:rut:rutres:200631

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Keywords: decomposition; transition; wages; inequality;

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References

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  1. David Card & John E. DiNardo, 2002. "Skill Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," NBER Working Papers 8769, National Bureau of Economic Research, Inc.
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  7. repec:wop:humbsf:1997-77 is not listed on IDEAS
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  12. Ira N. Gang & Myeong-Su Yun, 2002. "Decomposing Inequality Change in East Germany During Transition," Departmental Working Papers, Rutgers University, Department of Economics 200220, Rutgers University, Department of Economics.
  13. Wolfgang Franz & Viktor Steiner, 2000. "Wages in the East German Transition Process: Facts and Explanations," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 1(3), pages 241-269, 08.
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  16. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 104(4), pages 791-836, August.
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Cited by:
  1. Usamah Fayez Al-Farhan, 2010. "A Detailed Decomposition of Changes in Wage Inequality in Reunified Post-transition Germany 1999-2006: Accounting for Sample Selection," SOEPpapers on Multidisciplinary Panel Data Research 269, DIW Berlin, The German Socio-Economic Panel (SOEP).
  2. Usamah Fayez Al-Farhan, 2010. "Changes in the Gender Wage Gap in Germany during a Period of Rising Wage Inequality 1999-2006: Was it Discrimination in the Returns to Human Capital?," SOEPpapers on Multidisciplinary Panel Data Research 293, DIW Berlin, The German Socio-Economic Panel (SOEP).

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