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Polarization and Rising Wage Inequality: Comparing the U.S. and Germany

  • Antonczyk, Dirk

    ()

    (PricewaterhouseCoopers LLP)

  • DeLeire, Thomas C.

    ()

    (Georgetown University)

  • Fitzenberger, Bernd

    ()

    (Humboldt University Berlin)

This paper compares trends in wage inequality in the U.S. and Germany using an approach developed by MaCurdy and Mroz (1995) to separate age, time, and cohort effects. Between 1979 and 2004, wage inequality increased strongly in both the U.S. and Germany but there were various country specific aspects of this increase. For the U.S., we find faster wage growth since the 1990s at the top (80% quantile) and the bottom (20% quantile) compared to the median of the wage distribution, which is evidence for polarization in the U.S. labor market. In contrast, we find little evidence for wage polarization in Germany. Moreover, we see a large role played by cohort effects in Germany, while we find only small cohort effects in the U.S. Employment trends in both countries are consistent with polarization since the 1990s. We conclude that although there is evidence in both the U.S. and Germany which is consistent with a technology-driven polarization of the labor market, the patterns of trends in wage inequality differ strongly enough that technology effects alone cannot explain the empirical findings.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4842.

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Length: 52 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:iza:izadps:dp4842
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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. Pedro Carneiro & Sokbae (Simon) Lee, 2009. "Trends in quality-adjusted skill premia in the United States, 1960-2000," CeMMAP working papers CWP02/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
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  12. A.B. Atkinson & Andrew Leigh, 2006. "The Distribution of Top Incomes in Australia," CEPR Discussion Papers 514, Centre for Economic Policy Research, Research School of Economics, Australian National University.
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  15. Kohn, Karsten, 2006. "Rising Wage Dispersion, After All ! The German Wage Structure at the Turn of the Century," ZEW Discussion Papers 06-31, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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  17. Fitzenberger, Bernd & Kohn, Karsten & Wang, Qingwei, 2006. "The Erosion of Union Membership in Germany: Determinants, Densities, Decompositions," IZA Discussion Papers 2193, Institute for the Study of Labor (IZA).
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  19. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
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  23. Alexandra Spitz-Oener, 2006. "Technical Change, Job Tasks, and Rising Educational Demands: Looking outside the Wage Structure," Journal of Labor Economics, University of Chicago Press, vol. 24(2), pages 235-270, April.
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  25. Paul Beaudry & David Green, 2000. "The Changing Structure of Wages in the US and Germany: What Explains the Differences?," NBER Working Papers 7697, National Bureau of Economic Research, Inc.
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