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East Germany's wage gap: A non-parametric decomposition based on establishment characteristics

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  • Görzig, Bernd
  • Gornig, Martin
  • Werwatz, Axel

Abstract

East German wages have been below the West German wage level since unification. Moreover, the East-West wage gap implied by the contractual wages specified in collective wage agreements is drifting ever further apart from the wage gap in terms of effective wages. This paper looks at the role of establishment-specific factors - such as sectoral affiliation and size of the labour force - in this process. A non-parametric decomposition that has played a prominent role in the gender wage-gap literature is applied to breakdown the East- West wage gap into its constituent components. Using establishment data from the German employment statistics, the paper demonstrates that the divergence between wage agreements and effective wages is probably not a consequence of a massive escape from collective wage agreements, or the intense use of opt-out clauses in such agreements in East Germany. Rather, the shift of East Germany's economic structure towards lower-paying types of companies has caused the lagging behind in the adjustment of wages.

Suggested Citation

  • Görzig, Bernd & Gornig, Martin & Werwatz, Axel, 2006. "East Germany's wage gap: A non-parametric decomposition based on establishment characteristics," SFB 649 Discussion Papers 2006-044, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2006-044
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    Cited by:

    1. Rainer, Helmut & Siedler, Thomas, 2009. "Does democracy foster trust?," Journal of Comparative Economics, Elsevier, vol. 37(2), pages 251-269, June.
    2. repec:hum:wpaper:sfb649dp2006-045 is not listed on IDEAS
    3. Rainer, Helmut & Siedler, Thomas, 2006. "Does Democracy Foster Trust? Evidence from the German Reunification," Economics Discussion Papers 8903, University of Essex, Department of Economics.
    4. Görzig, Bernd & Gornig, Martin & Werwatz, Axel, 2006. "Firm specific wage spread in Germany: Decomposition of regional differences in inter firm wage dispersion," SFB 649 Discussion Papers 2006-045, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    5. 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).
    6. Rainer, Helmut & Siedler, Thomas, 2009. "Does democracy foster trust?," Journal of Comparative Economics, Elsevier, vol. 37(2), pages 251-269, June.

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    More about this item

    Keywords

    Regional Wage Gap; Decomposition; Nonparametric Regression;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models

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