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

Author

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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.

Suggested Citation

  • Michael C. Burda & Christoph M. Schmitd, 1997. "Getting Behind the East-West [German] Wage Differential: Theory and Evidence," William Davidson Institute Working Papers Series 105, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:1997-105
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    Citations

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    Cited by:

    1. Wolfgang Franz & Viktor Steiner, 2000. "Wages in the East German Transition Process: Facts and Explanations," German Economic Review, Verein für Socialpolitik, vol. 1(3), pages 241-269, August.
    2. Axel Heitmueller & Kostas G. Mavromaras, 2007. "On The Post‐Unification Development Of Public And Private Pay In Germany," Manchester School, University of Manchester, vol. 75(4), pages 422-444, July.
    3. Burda, Michael C. & Severgnini, Battista, 2018. "Total factor productivity convergence in German states since reunification: Evidence and explanations," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 192-211.
    4. 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.
    5. Müller, Ralf, 2000. "Humankapital in der Transformation - Das Beispiel der neuen Länder," IWH Discussion Papers 126/2000, Halle Institute for Economic Research (IWH).
    6. 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.

    More about this item

    Keywords

    German unification; wage differentials; convergence;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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