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Getting Behind the East-West [German] Wage Differential: Theory and Evidence

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  • Michael C. Burda
  • Christoph M. Schmitd

Abstract

Labor markets are the most important mediator of German unification and wages are a central indicator of its progress. Starting from the observation that a wage differential between two workers can arise either because workers have different endowments of human capital characteristics or remuneration to these characteristics differ, we apply an Oaxaca-style decomposition to the post-unification waves of the GSOEP to analyze the extent and causes of the East-West German wage differential. We derive an empirical specification allowing us to assess directly whether (i) the initial wage disadvantage of East German workers is increasing in "age at unification" and (ii) subsequent wage growth is increasing in the time remaining in the labor force. Furthermore, we derive and estimate a measure of East-West wage convergence that accounts for both differences in human capital endowments and interference generated by the aging process.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 105.

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Length: pages
Date of creation: 01 May 1997
Date of revision:
Handle: RePEc:wdi:papers:1997-105

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Keywords: German unification; wage differentials; convergence;

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Cited by:
  1. Franz, Wolfgang & Steiner, Viktor, 1999. "Wages in the East German transition process: facts and explanations," ZEW Discussion Papers 99-40, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  2. Jennifer Hunt, 2002. "The Transition in East Germany: When Is a Ten-Point Fall in the Gender Wage Gap Bad News?," Journal of Labor Economics, University of Chicago Press, vol. 20(1), pages 148-169, January.
  3. Heitmueller, Axel & Mavromaras, Kostas G., 2005. "On the Post-Unification Development of Public and Private Pay in Germany," IZA Discussion Papers 1696, Institute for the Study of Labor (IZA).
  4. Young-Bae Kim, 2008. "Is There A Trade-off Between Regional Growth and National Income? Theory and Evidence from the EU," School of Economics Discussion Papers 1008, School of Economics, University of Surrey.

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