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Development of Wage Inequality for Natives and Immigrants in Germany: Evidence from Quantile Regression and Decomposition

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  • Heiko Peters

Abstract

To study the development of wage inequality is important for the economic performance as well as for the development of employment. First, I estimate the remuneration to personal characteristics for Germans and immigrants across the wage distribution using quantile regression. My database is the German socio-economic panel for the period 1984-2006. I find a higher inequality between skill groups for Germans relative to immigrants. The returns to skill for the highest educational attainment are higher for Germans across the wage distribution compared to immigrants. But within-group inequality for the group with the highest educational attainment is higher for immigrants. Both groups have concave experience-earnings profiles. One more year of work experience increases the wage more for Germans. Secondly I use the decomposition method of Melly (2006). Decomposition methods are suitable to get further insights into the question as to whether or not the observable differences in the distribution are caused by the difference in the composition or differences in the estimated coefficients. Immigrants have a negative wage gap relative to Germans. The wage gap rises across the distribution and is due to a rising discrimination of immigrants across the wage distribution for the years 1992 and 2006. For the year 1984 the characteristic effect is responsible for the wage gap. Inequality rises for both groups between the year 1992 and 2006. The increase is much stronger for Immigrants. The coefficient effect is mainly responsible for the wage increase across time for both groups.

Suggested Citation

  • 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).
  • Handle: RePEc:diw:diwsop:diw_sp113
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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.
    4. Koenker,Roger, 2005. "Quantile Regression," Cambridge Books, Cambridge University Press, number 9780521845731, April.
    5. Kohn, Karsten, 2006. "Rising Wage Dispersion, After All! The German Wage Structure at the Turn of the Century," IZA Discussion Papers 2098, Institute for the Study of Labor (IZA).
    6. Richard B. Freeman & Lawrence F. Katz, 1995. "Differences and Changes in Wage Structures," NBER Books, National Bureau of Economic Research, Inc, number free95-1, July.
    7. 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.
    8. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
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    Cited by:

    1. Kamil DYBCZAK & Kamil GALUSCAK, 2013. "Changes in the Czech Wage Structure: Does Immigration Matter?," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 63(2), pages 108-128, May.
    2. Thomas Grandner & Dieter Gstach, 2015. "Decomposing wage discrimination in Germany and Austria with counterfactual densities," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(1), pages 49-76, February.
    3. Carl Lin, 2016. "How Do Immigrants From Taiwan Fare In The U.S. Labor Market?," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 61(05), pages 1-38, December.
    4. Thomas Grandner & Dieter Gstach, 2012. "Decomposing wage discrimination in Germany and Austria with counterfactual densities," Department of Economics Working Papers wuwp145, Vienna University of Economics and Business, Department of Economics.
    5. Grandner, Thomas & Gstach, Dieter, 2012. "Decomposing wage discrimination in Germany and Austria with counterfactual densities," Department of Economics Working Paper Series 3614, WU Vienna University of Economics and Business.
    6. Aldashev Alisher & Gernandt Johannes & Thomsen Stephan L., 2012. "The Immigrant-Native Wage Gap in Germany," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 232(5), pages 490-517, October.
    7. Brenzel, Hanna & Laible, Marie-Christine, 2016. "Does personality matter? : the impact of the big five on the migrant and gender wage gaps," IAB Discussion Paper 201626, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].

    More about this item

    Keywords

    Wage inequality; immigrants; Germany; decomposition; quantile regression;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • D30 - Microeconomics - - Distribution - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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