Decomposing the German East–West wage gap

Abstract

Wages in East Germany are persistently lower than in West Germany. We study the micro-level determinants of this spatial wage gap, using an Oaxaca-Blinder decomposition and rich linked employer-employee data. In total, up to one half of the aggregate wage differential can be attributed to structural differences in worker, establishment and regional characteristics. Regional price and establishment size differentials alone account for one quarter of the wage gap at the median. Price level differentials are even more relevant towards the top of the wage distribution. Towards the bottom, differences in union coverage become more important. Our findings are quite stable over the period from 1996 to 2010.JEL classifications: J31, P25, R12.

Revisiting interregional wage differentials: New evidence from Spain with matched employer‐employee data

“…The examination of spatial wage differentials and the causes behind them has received quite some attention in the literature, covering a variety of countries, such us the UK (Blackaby & Manning, , ), France (Combes et al, ), Germany (Kluge & Weber, ), the Netherlands (Groot & de Groot, ; Groot, de Groot, & Smit, ), Spain (Motellón, López‐Bazo, & Attar, ), Italy (Matano & Naticchioni, , ), and Portugal (Galego & Pereira, ; Pereira & Galego, , ; Vieira, Couto, & Tiago, ). Two different strands can be identified in this literature.…”

“…Other studies that also apply this methodology are López‐Bazo and Motellón () for Spain and Kluge and Weber () for Germany.…”

The persistent pay gap between Easterners and Westerners in Germany: A quarter‐century after reunification

“…We use the quantile regression methodology to identify the regional wage differentials at the 10 th , 25 th , 50 th , 75 th , and 90 th percentiles and attribute these gaps to the potential sources stated above. Finally, the most recent studies (Blien, Möller, thi Hong Van, & Drunow, 2016;Kluge & Weber, 2018;Smolny & Kirbach, 2011) addressing the Easterner-Westerner wage differential were conducted using data up to 2008 and 2010 respectively, and most of the empirical literature employed data from the 1990s or early 2000s. This paper uses data from the SOEP for 2016.…”

A Reform Strategy for Germany

“…With reunification, the West-German model was extended to the East and the system remained relatively stable for standard employment contracts (Eichhorst and Marx 2011;Dustmann et al 2014). Despite low and declining union membership, in the 2000s, still, some 60-70% of all employees were covered by collective agreements and such coverage still implied significant wage premia (Kohaut and Schnabel 2007;Burda et al 2008;Fitzenberger et al 2013;Kluge and Weber 2018). The contrast between marginal workers in precarious employment and the well-protected and covered insiders has increased in recent decades (Brady and Biegert 2017).…”