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On The Post‐Unification Development Of Public And Private Pay In Germany

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  • AXEL HEITMUELLER
  • KOSTAS G. MAVROMARAS

Abstract

German post‐unification in the 1990s is a period marked by substantial economic and political change, a crucial part of which was a largely politically motivated attempt to build East German wages towards the much higher West German wages. We study the development of the public–private sector pay gap in Germany in the 1990s. We show that throughout the 1990s the overall pay gap between the public and private sectors remained stable in the West and increased considerably in the East. Wage decompositions show a small and stable negative public sector premium in the West, and a large and increasing positive public sector pay premium in the East. Decompositions also show a considerable deterioration in the skill base of the private sector in the East which the paper attributes in part to the improved attractiveness of the public sector. The paper argues that the development in the size and composition of the public–private sector pay gap in the East is an indication of the public sector crowding out the private sector and raises concerns about the future competitiveness of the East.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:manchs:v:75:y:2007:i:4:p:422-444
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    File URL: https://doi.org/10.1111/j.1467-9957.2007.01024.x
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    References listed on IDEAS

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    1. Andrew Henley & Dennis Thomas, 2001. "Public Service Employment and the Public- Private Wage Differential in British Regions," Regional Studies, Taylor & Francis Journals, vol. 35(3), pages 229-240.
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    5. Hans‐Werner Sinn, 1995. "Staggering along: wages policy and investment support in East Germany," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(4), pages 403-426, December.
    6. 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.
    7. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
    8. Christian Dustmann & Arthur Van Soest, 1997. "Wage structures in the private and public sectors in West Germany," Fiscal Studies, Institute for Fiscal Studies, vol. 18(3), pages 225-247, August.
    9. Heitmueller, Axel, 2005. "A Note on Decompositions in Fixed Effects Models in the Presence of Time-Invariant Characteristics," IZA Discussion Papers 1886, Institute of Labor Economics (IZA).
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    Cited by:

    1. repec:bla:ecorec:v:93:y:2017:i::p:105-121 is not listed on IDEAS
    2. repec:bla:jpbect:v:19:y:2017:i:2:p:490-510 is not listed on IDEAS
    3. Tansel, Aysit & Keskin, Halil Ibrahim & Ozdemir, Zeynel Abidin, 2008. "Public versus Private Sector Wage Gap in Egypt: Evidence from Quantile Regression on Panel Data," MPRA Paper 89540, University Library of Munich, Germany.
    4. Gabriele Cardullo, 2017. "The Welfare and Employment Effects of Centralized Public Sector Wage Bargaining," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(2), pages 490-510, April.
    5. Orlowski, Robert & Riphahn, Regina T., 2008. "Seniority in Germany: New evidence on returns to tenure for male full-time workers," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 41(2/3), pages 139-155.
    6. Kostas Mavromaras & Stephane Mahuteau & Kostas Mavromaras & Sue Richardson & Rong Zhu, 2017. "Public–Private Sector Wage Differentials in Australia," The Economic Record, The Economic Society of Australia, vol. 93, pages 105-121, June.
    7. repec:iab:iabzaf:v:41:i:2/3:p:139-155 is not listed on IDEAS
    8. Gabriela Grotkowska, 2016. "Regional variation in the public sector wage premium in Poland," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 46.
    9. Caponi, Vincenzo, 2017. "Public employment policies and regional unemployment differences," Regional Science and Urban Economics, Elsevier, vol. 63(C), pages 1-12.
    10. Robert Orlowski & Regina T. Riphahn, 2007. "Seniority in Germany: New Evidence on Returns to Tenure for Male Full-time Workers," Working Papers 036, Bavarian Graduate Program in Economics (BGPE).
    11. Gabriele Cardullo, 2012. "Public Sector Wage Bargaining, Unemployment, and Inequality," DEP - series of economic working papers 2/2012, University of Genoa, Research Doctorate in Public Economics.

    More about this item

    JEL classification:

    • J78 - Labor and Demographic Economics - - Labor Discrimination - - - Public Policy (including comparable worth)
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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