Has Earnings Inequality in Germany Changed in the 1980’s?

Abstract

The development of the West German earnings distribution in the 1980's is analysed on the basis of both the German Socio-Economic Panel and micro-data from the Employment Register of the Federal Labour Office. We find that earnings inequality in Germany has increased very little in the 1980's, if at all. It is shown •that the marked increase in earnings inequality found in previous studies based on the register data is a statistical artifact related to a change in the coding of the earnings data. Our decomposition analysis based on estimated earnings functions reveals that the relative stability of the German earnings distribution in the 1980's has not resulted from large compensating changes in the composition of the labour forc~on the one hand, and changes in the returns to human capital on the other. While both of these components have changed little in the observation period, the former rather than the latter component has contributed to the small increase in earnings inequality observed in the register data. If anything, the earnings differential between skilled and unskilled workers has become smaller during the 1980's, while within-inequality has contributed very little to changes in inequality. Overall, the empirical results of this study seem compatible with an institutional explanation of the stability of the German earnings distribution. JEL classification: J31, J24 AcknowledgementWe thank Stefan Bender from the Institute for Employment Research (lAB), Niirnberg, and our colleagues Patrick A. Puhani and Florian Kraus for helpful suggestions and discussions. Matthias Almus provided excellent research assistance. We are grateful to the Centre for Survey and Methodological Research (ZUMA), Mannheim, for providing us with some calculations from the Labour Force Surveys ("Mikrozensus") held there. Partial funding from the Anglo-German Foundation under the project "Labour Markets in Transitions" is gratefully acknowledged. The usual caveats apply.

The Unbearable Stability of the German Wage Structure: Evidence and Interpretation

“…Using GSOEP data,Abraham and Houseman (1995) andSteiner and Wagner (1998) report similar findings of a stable dispersion of gross monthly earnings during the 1980s. "Katz and Murphy (1992) construct proxies for relative demand shifts using shifts in the mix of industry-occupation classifications and the relative proportions of skilled and unskilled workers within these industry-occupation cells.…”

A tale of two data sets: comparing German administrative and survey data using wage inequality as an example

“…For years, the Socio-Economic Panel (SOEP) has been the standard data set for analyzing income and wage 1 inequality in Germany (e.g., Steiner and Wagner 1998;Biewen 2000;Gernandt and Pfeiffer 2007;Biewen and Juhasz 2012;Sommerfeld 2013). However, research based on administrative data has recently gained importance, especially in labor economics (e.g., Card et al 2013;Fitzenberger and de Lazzer 2022).…”