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Decomposing the German East–West wage gap

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  • Jan Kluge
  • Michael Weber

Abstract

Wages in East Germany are persistently lower than in West Germany. We study the micro†level determinants of this spatial wage gap, using an Oaxaca–Blinder decomposition and rich linked employer–employee data. In total, up to one half of the aggregate wage differential can be attributed to structural differences in worker, establishment and regional characteristics. Regional price and establishment size differentials alone account for one quarter of the wage gap at the median. Price level differentials are even more relevant towards the top of the wage distribution. Towards the bottom, differences in union coverage become more important. Our findings are quite stable over the period from 1996 to 2010.

Suggested Citation

  • Jan Kluge & Michael Weber, 2018. "Decomposing the German East–West wage gap," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 26(1), pages 91-125, January.
  • Handle: RePEc:bla:etrans:v:26:y:2018:i:1:p:91-125
    DOI: 10.1111/ecot.12137
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    1. Bönke, Timm & Harnack, Astrid & Wetter, Miriam, 2019. "Wer gewinnt? Wer verliert? Die Entwicklung auf dem deutschen Arbeitsmarkt seit den frühen Jahren der Bundesrepublik bis heute," Discussion Papers 2019/4, Free University Berlin, School of Business & Economics.
    2. repec:iab:iabfob:201806 is not listed on IDEAS

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