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Getting Behind the East-West [German] Wage Differential: Theory and Evidence

Michael Burda () and Christoph M. Schmitd
Authors registered in the RePEc Author Service: Christoph M. Schmidt

No 105, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Labor markets are the most important mediator of German unification and wages are a central indicator of its progress. Starting from the observation that a wage differential between two workers can arise either because workers have different endowments of human capital characteristics or remuneration to these characteristics differ, we apply an Oaxaca-style decomposition to the post-unification waves of the GSOEP to analyze the extent and causes of the East-West German wage differential. We derive an empirical specification allowing us to assess directly whether (i) the initial wage disadvantage of East German workers is increasing in "age at unification" and (ii) subsequent wage growth is increasing in the time remaining in the labor force. Furthermore, we derive and estimate a measure of East-West wage convergence that accounts for both differences in human capital endowments and interference generated by the aging process.

Keywords: German unification; wage differentials; convergence (search for similar items in EconPapers)
JEL-codes: J31 J61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn and nep-ltv
Date: 1997-05-01
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Persistent link: https://EconPapers.repec.org/RePEc:wdi:papers:1997-105

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