On the Post-Unification Development of Public and Private Pay in Germany

Axel Heitmueller and Kostas Mavromaras

No 1696, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: German post-unification in the 1990s is a period that was marked by substantial economic change, part of which was East German wages building towards the much higher West German levels. This paper studies the public-private pay gap in the fast changing economic and political environment of the 1990s using panel estimation techniques which control for unobserved individual heterogeneity. It shows that, while the overall pay gap between public and private sector stayed remarkably constant in the West, earnings differences in the East increased threefold in the late 1990s resulting in a substantial wage premium in the public sector. It is suggested that this premium is a result of the politically induced gap between pay and actual productivity. Furthermore, results vary greatly by gender indicating significantly larger female earnings differentials. Several institutional and political arguments are presented to explain this phenomenon.

Keywords: public-private sector pay differential; decomposition; Germany (search for similar items in EconPapers)
JEL-codes: J31 J78 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2005-07
New Economics Papers: this item is included in nep-eec and nep-lab
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Published - published in: Manchester School, 2007, 75 (4), 422–444

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Related works:
Journal Article: ON THE POST‐UNIFICATION DEVELOPMENT OF PUBLIC AND PRIVATE PAY IN GERMANY* (2007)
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