Composition matters! Wage inequality and the demographic and educational structure of the labor force in Germany

Benjamin Weigert and Marcus Klemm

VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy from Verein für Socialpolitik / German Economic Association

Abstract: This paper addresses the importance of compositional changes in the labor force for the development of the wage distribution. Demographic change and higher educational attainment imply a shift toward employees with more experience and/or better education. These groups are characterized by higher relative wages as well as higher within-group wage inequality. Mechanically, these compositional shifts entail a rise in wage inequality. We discuss the mechanisms theoretically and present empirical evidence using data of the German Socio-Economic Panel from the mid 1990's to 2012. Accounting for the parallel changes in the age structure and the educational background of the labor force, these compositional effects alone can explain one quarter of the observed increase in aggregate wage inequality.

JEL-codes: D31 J11 J31 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-age
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc15:112914

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