Dynamics of Earnings and Hourly Wages in Germany

Michal Myck, Richard Ochmann and Salmai Qari

No 3751, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: There is by now a vast number of studies which document a sharp increase in cross-sectional wage inequality during the 2000s. It is often assumed that this inequality is of a "permanent nature" which in turn is used as an argument calling for government intervention. We examine these claims using a fully balanced panel of full-time employed individuals in Germany from the German Socio-Economic Panel for the years 1994–2006. In line with previous studies, our sample shows sharply rising inequality during the 2000s. Applying covariance structure models, we calculate the fraction of permanent and transitory wage and earnings inequality. From 1994 on, permanent inequality increases continuously, peaks in 2001 and then declines in subsequent years. Interestingly the decline in the permanent fraction of inequality occurs at the time of most rapid increases in cross-sectional inequality. It seems therefore that it is primarily the temporary and not the permanent component which has driven the strong expansion of cross-sectional inequality during the 2000s in Germany.

Keywords: wage dynamics; variance decomposition; earnings inequality; covariance structure models (search for similar items in EconPapers)
JEL-codes: C23 D31 J31 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2008-10
New Economics Papers: this item is included in nep-bec and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published - revised version published as 'Dynamics in Transitory and Permanent Variation of Wages in Germany' in: Economics Letters , 2011, 113 (2), 143 - 146

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Related works:
Working Paper: Dynamics of Earnings and Hourly Wages in Germany (2009)
Working Paper: Dynamics of Earnings and Hourly Wages in Germany (2008)
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