IDEAS home Printed from https://ideas.repec.org/p/diw/diwsop/diw_sp107.html
   My bibliography  Save this paper

Wage Convergence and Inequality after Unification: (East) Germany in Transition

Author

Listed:
  • Johannes Gernandt
  • Friedhelm Pfeiffer

Abstract

This paper investigates the wage convergence between East German workers and their West German counterparts after reunification. Our research is based on a comparison of three groups of workers defined as stayers, migrants and commuters to West Germany, who lived in East Germany in 1989, with groups of West German statistical twin workers, all taken from the Socio-Economic Panel (SOEP). According to our findings, wage convergence for stayers is roughly 75 percent and for commuters 85 percent. Wages of migrants to West Germany equal the ones of their West German statistical twins. We conclude that labor markets in East and West Germany are still characterized by wage differences but that the degree of inequality in both regions converged.

Suggested Citation

  • Johannes Gernandt & Friedhelm Pfeiffer, 2008. "Wage Convergence and Inequality after Unification: (East) Germany in Transition," SOEPpapers on Multidisciplinary Panel Data Research 107, DIW Berlin, The German Socio-Economic Panel (SOEP).
  • Handle: RePEc:diw:diwsop:diw_sp107
    as

    Download full text from publisher

    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.85462.de/diw_sp0107.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Alan B. Krueger & Jorn-Steffen Pischke, 1995. "A Comparative Analysis of East and West German Labor Markets: Before and After Unification," NBER Chapters, in: Differences and Changes in Wage Structures, pages 405-446, National Bureau of Economic Research, Inc.
    2. Eswar S. Prasad, 2004. "The Unbearable Stability of the German Wage Structure: Evidence and Interpretation," IMF Staff Papers, Palgrave Macmillan, vol. 51(2), pages 354-385.
    3. Gerlinde Sinn & Hans-Werner Sinn, 1994. "Jumpstart: The Economic Unification of Germany," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262691728, September.
    4. Frank W. Heiland, 2004. "Trends in East-West German Migration from 1989 to 2002," Demographic Research, Max Planck Institute for Demographic Research, Rostock, Germany, vol. 11(7), pages 173-194.
    5. Kohn, Karsten, 2006. "Rising Wage Dispersion, After All! The German Wage Structure at the Turn of the Century," IZA Discussion Papers 2098, Institute of Labor Economics (IZA).
    6. 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.
    7. Paul R. Krugman, 1994. "Past and prospective causes of high unemployment," Economic Review, Federal Reserve Bank of Kansas City, vol. 79(Q IV), pages 23-43.
    8. Richard Blundell & Lorraine Dearden & Barbara Sianesi, 2003. "Evaluating the impact of education on earnings in the UK: Models, methods and results from the NCDS," IFS Working Papers W03/20, Institute for Fiscal Studies.
    9. Gernandt Johannes & Pfeiffer Friedhelm, 2007. "Rising Wage Inequality in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 227(4), pages 358-380, August.
    10. Herbert Brücker & Parvati Trübswetter, 2007. "Do the best go west? An analysis of the self-selection of employed East-West migrants in Germany," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(4), pages 371-395, September.
    11. Jennifer Hunt, 2001. "Post-Unification Wage Growth in East Germany," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 190-195, February.
    12. Lechner, Michael & Pfeiffer, Friedhelm & O'Shea, Linda Giesecke, 1993. "Expected Job Loss in East Germany Shortly before German Unification," Empirical Economics, Springer, vol. 18(2), pages 289-306.
    13. Jennifer Hunt, 2006. "Staunching Emigration from East Germany: Age and the Determinants of Migration," Journal of the European Economic Association, MIT Press, vol. 4(5), pages 1014-1037, September.
    14. Hauser, Richard & Fabig, Holger, 1999. "Labor Earnings and Household Income Mobility in Reunified Germany: A Comparison of the Eastern and Western States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(3), pages 303-324, September.
    15. Barbara Sianesi, 2001. "Propensity score matching," United Kingdom Stata Users' Group Meetings 2001 12, Stata Users Group, revised 23 Aug 2001.
    16. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 124(2), pages 843-881.
    17. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, March.
    18. Michael C. Burda & Jennifer Hunt, 2001. "From Reunification to Economic Integration: Productivity and the Labor Market in Eastern Germany," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 1-92.
    19. Reinhard Hujer & Bernd Fitzenberger & Reinhold Schnabel & Thomas E. MaCurdy, 2001. "Testing for uniform wage trends in West-Germany: A cohort analysis using quantile regressions for censored data," Empirical Economics, Springer, vol. 26(1), pages 41-86.
    20. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-442, June.
    21. Edwin Leuven & Barbara Sianesi, 2003. "PSMATCH2: Stata module to perform full Mahalanobis and propensity score matching, common support graphing, and covariate imbalance testing," Statistical Software Components S432001, Boston College Department of Economics, revised 01 Feb 2018.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Julia Bredtmann, 2014. "The Intra-household Division of Labor: An Empirical Analysis of Spousal Influences on Individual Time Allocation," LABOUR, CEIS, vol. 28(1), pages 1-39, March.
    2. Anja Vatterrott, 2015. "Socialisation or Institutional Context: What Determines the First and Second Birth Behaviour of East–West German Migrants?," European Journal of Population, Springer;European Association for Population Studies, vol. 31(4), pages 383-415, October.
    3. Arntz, Melanie & Gregory, Terry & Lehmer, Florian, 2011. "Unequal pay or unequal employment? What drives the skill-composition of labor flows in Germany?," ZEW Discussion Papers 11-074, ZEW - Leibniz Centre for European Economic Research.
    4. Brück, Tilman & Peters, Heiko, 2009. "20 Years of German Unification: Evidence on Income Convergence and Heterogeneity," IZA Discussion Papers 4454, Institute of Labor Economics (IZA).
    5. Schnabel Claus, 2016. "United, Yet Apart? A Note on Persistent Labour Market Differences between Western and Eastern Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 236(2), pages 157-179, March.
    6. Karsten Kohn & Dirk Antonczyk, 2013. "The aftermath of reunification," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 21(1), pages 73-110, January.
    7. Terry Gregory & Melanie Arntz & Florian Lehmer, 2011. "Unequal Pay or Unequal Employment? What Drives the Self-Selection of Internal Migrants in Germany?," ERSA conference papers ersa11p972, European Regional Science Association.
    8. repec:zbw:rwirep:0200 is not listed on IDEAS
    9. Jan Kluge & Michael Weber, 2015. "Decomposing the German East-West wage gap," ifo Working Paper Series 205, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    10. 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).
    11. 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.
    12. Kohn, Karsten & Antonczyk, Dirk, 2011. "The Aftermath of Reunification: Sectoral Transition, Gender, and Rising Wage Inequality in East Germany," IZA Discussion Papers 5708, Institute of Labor Economics (IZA).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Karsten Kohn & Dirk Antonczyk, 2013. "The aftermath of reunification," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 21(1), pages 73-110, January.
    2. Robert Orlowski & Regina T. Riphahn, 2008. "The East German Wage Structure after Transition," CESifo Working Paper Series 2511, CESifo.
    3. Gernandt Johannes & Pfeiffer Friedhelm, 2007. "Rising Wage Inequality in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 227(4), pages 358-380, August.
    4. Kohn, Karsten & Antonczyk, Dirk, 2011. "The Aftermath of Reunification: Sectoral Transition, Gender, and Rising Wage Inequality in East Germany," IZA Discussion Papers 5708, Institute of Labor Economics (IZA).
    5. 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).
    6. Heiko Peters, 2008. "Development of Wage Inequality for Natives and Immigrants in Germany: Evidence from Quantile Regression and Decomposition," SOEPpapers on Multidisciplinary Panel Data Research 113, DIW Berlin, The German Socio-Economic Panel (SOEP).
    7. Dirk Antonczyk & Thomas DeLeire & Bernd Fitzenberger, 2018. "Polarization and Rising Wage Inequality: Comparing the U.S. and Germany," Econometrics, MDPI, Open Access Journal, vol. 6(2), pages 1-33, April.
    8. Ira N. Gang & Robert C. Stuart & Myeong-Su Yun, 2006. "Wage Growth and Inequality Change During Rapid Economic Transition," Departmental Working Papers 200631, Rutgers University, Department of Economics.
    9. Kuehn, Zoe, 2012. "Migration, Wages, and Parental Background: Obstacles to Entrepreneurship and Growth in East Germany," MPRA Paper 49250, University Library of Munich, Germany.
    10. Christian Dustmann & Johannes Ludsteck & Uta Schönberg, 2009. "Revisiting the German Wage Structure," The Quarterly Journal of Economics, Oxford University Press, vol. 124(2), pages 843-881.
    11. Riphahn, Regina T. & Schnitzlein, Daniel D., 2016. "Wage mobility in East and West Germany," Labour Economics, Elsevier, vol. 39(C), pages 11-34.
    12. Aretz, Bodo, 2013. "Gender Differences in German Wage Mobility," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80003, Verein für Socialpolitik / German Economic Association.
    13. 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.
    14. Bachmann, Ronald & Bauer, Thomas K. & Kröger, Hanna & Schaffner, Sandra & Schmidt, Christoph M., 2012. "Tarifvertragssystem stärken - Allgemeinverbindliche Tariflöhne und branchenspezifische Mindestlöhne erleichtern. Stellungnahme zur Anhörung des Ausschusses für Arbeit und Soziales des Deutschen Bundes," RWI Projektberichte, RWI - Leibniz-Institut für Wirtschaftsforschung, number 72615.
    15. K. Sommerfeld, 2013. "Higher and higher? Performance pay and wage inequality in Germany," Applied Economics, Taylor & Francis Journals, vol. 45(30), pages 4236-4247, October.
    16. Robert Orlowski & Regina T. Riphahn, 2009. "The East German wage structure after transition1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 17(4), pages 629-659, October.
    17. Antonczyk, Dirk & Fitzenberger, Bernd & Sommerfeld, Katrin, 2010. "Rising wage inequality, the decline of collective bargaining, and the gender wage gap," Labour Economics, Elsevier, vol. 17(5), pages 835-847, October.
    18. Uwe Jirjahn & Kornelius Kraft, 2010. "Teamwork And Intra‐Firm Wage Dispersion Among Blue‐Collar Workers," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(4), pages 404-429, September.
    19. Brück, Tilman & Peters, Heiko, 2009. "20 Years of German Unification: Evidence on Income Convergence and Heterogeneity," IZA Discussion Papers 4454, Institute of Labor Economics (IZA).
    20. Zaiceva, Anzelika, 2006. "Self-Selection and the Returns to Geographic Mobility: What Can Be Learned from the German Reunification "Experiment"," IZA Discussion Papers 2524, Institute of Labor Economics (IZA).

    More about this item

    Keywords

    Wage convergence; wage inequality; German unification; migration; commuting;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

    NEP fields

    This paper has been announced in the following NEP Reports:

    Lists

    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. SOEP based publications

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwsop:diw_sp107. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bibliothek). General contact details of provider: https://edirc.repec.org/data/sodiwde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.