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Dynamics of Earnings and Hourly Wages in Germany

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  • Michal Myck
  • Richard Ochmann
  • Salmai Qari

Abstract

There is by now a vast number of studies which document a sharp increase in crosssectional wage inequality during the 2000s. It is often assumed that this inequality is of a "permanent nature" which in turn is used as an argument calling for government intervention. We examine these claims using a fully balanced panel of full-time employed individuals in Germany from the German Socio-Economic Panel for the years 1994-2006. In line with previous studies, our sample shows sharply rising inequality during the 2000s. Applying covariance structure models, we calculate the fraction of permanent and transitory wage and earnings inequality. From 1994 on, permanent inequality increases continuously, peaks in 2001 and then declines in subsequent years. Interestingly the decline in the permanent fraction of inequality occurs at the time of most rapid increases in cross-sectional inequality. It seems therefore that it is primarilythe temporary and not the permanent component which has driven the strong expansion of cross-sectional inequality during the 2000s in Germany.

Suggested Citation

  • Michal Myck & Richard Ochmann & Salmai Qari, 2008. "Dynamics of Earnings and Hourly Wages in Germany," SOEPpapers on Multidisciplinary Panel Data Research 139, DIW Berlin, The German Socio-Economic Panel (SOEP).
  • Handle: RePEc:diw:diwsop:diw_sp139
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Aedín Doris & Donal O’Neill & Olive Sweetman, 2013. "Identification of the covariance structure of earnings using the GMM estimator," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 11(3), pages 343-372, September.
    2. repec:spr:jlabrs:v:50:y:2017:i:1:d:10.1007_s12651-017-0227-3 is not listed on IDEAS
    3. Giesecke, Matthias & Bönke, Timm & Lüthen, Holger, 2011. "The Dynamics of Earnings in Germany: Evidence from Social Security Records," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48692, Verein für Socialpolitik / German Economic Association.
    4. Krebs, Tom & Yao, Yao, 2016. "Labor Market Risk in Germany," IZA Discussion Papers 9869, Institute for the Study of Labor (IZA).
    5. Corneo Giacomo, 2015. "Kreuz und quer durch die deutsche Einkommensverteilung," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 16(2), pages 109-126, June.
    6. Reinhold, Mario & Thomsen, Stephan, 2015. "Patterns of Labour Market Entry of High-Skilled Workers in Germany," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113018, Verein für Socialpolitik / German Economic Association.
    7. repec:iab:iabjlr:v:2017:i:1:p:161-174 is not listed on IDEAS
    8. Reinhold, Mario & Thomsen, Stephan L., 2016. "The Changing Situation of Labor Market Entrants in Germany: A Long-Run Analysis of Wages and Occupational Patterns," IZA Discussion Papers 10334, Institute for the Study of Labor (IZA).
    9. Mirko Felchner, 2015. "Einkommensdynamik bei Selbständigen als Freie Berufe und abhängig Beschäftigte Eine dynamische Paneldatenschätzung mit Daten des Sozio-oekonomischen Panels," FFB-Discussionpaper 101, Research Institute on Professions (Forschungsinstitut Freie Berufe (FFB)), LEUPHANA University Lüneburg.
    10. van Treeck, Till. & Sturn, Simon., 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 994709343402676, International Labour Organization.
    11. Myck, Michal & Ochmann, Richard & Qari, Salmai, 2011. "Dynamics in transitory and permanent variation of wages in Germany," Economics Letters, Elsevier, vol. 113(2), pages 143-146.

    More about this item

    Keywords

    Variance decomposition; covariance structure models; earnings inequality; wage dynamics;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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