Explaining Eastern Germany's Wage Gap: The Impact of Structural Change

Bernd Görzig, Martin Gornig and Axel Werwatz

Post-Communist Economies, 2005, vol. 17, issue 4, 449-464

Abstract: Since Eastern Germany's conversion to a market economy wages have remained considerably below the West German wage level. This article 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 German employment statistics, the article demonstrates that the catching-up process of Eastern Germany's wage level is hindered by the shift in its economic structure towards lower-paying types of companies, which has caused the lagging behind in the adjustment of wages.

Date: 2005
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DOI: 10.1080/14631370500350744

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