Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp10014.pdf Non-technical SummaryWage inequality has been increasing in many industrialized countries over the past decades. Parallel to this trend, coverage by collective wage bargaining has declined strongly in many economies (OECD, 2004). The gender wage gap has also declined in most of these countries. However, these three developments have rarely been investi- Our results show that wage inequality is rising strongly both for males and females, driven not only by wage increases at the top of the distribution, but even more so by real wage losses below the median. At the same time, we find a sharp decline in coverage by collective bargaining. Both coverage by sectoral-level bargaining and coverage by firm-level bargaining is falling over time. Our sequential decomposition results show that all workplace related effects (firm effects and bargaining effects) contribute to the strong rise in wage inequality. We find evidence that the reduction in bargaining coverage contributes in a sizeable way to rising wage inequality and that the bargaining outcomes allow for higher wage flexibility. Nevertheless, these effects are dominated by the firm coefficients effect, which is almost exclusively driven by the sector coefficients effect, meaning that between-and within-industry wage differences drive the observed rise in wage inequality. The drop in collective bargaining coverage takes place almost exclusively within sectors. In addition, personal coefficients contribute to some degree to the increase in wage inequality, again reinforcing the dominance of labor demand effects.In contrast, personal characteristics change in a way to reduce wage inequality. All this adds up to a stagnation of the overall gender wage gap, and only the strong improvement in personal characteristics of females results in a fall of the gender wage gap at the bottom of the wage distribution. The drop in collective bargaining coverage hardly affected the gender wage gap. Despite these changes, the gender wage gap remains almost constant, with some small gains for women at the bottom and at the top of the wage distribution. A sequential decomposition analysis using quantile regression shows that all workplace related effects (firm effects and bargaining effects) and coefficients for personal characteristics contribute strongly to the rise in wage inequality. Among these, the firm coefficients effect dominates,...

Since the late 1970s, wage inequality has increased strongly both in the U.S. and Germany but the trends have been different. Wage inequality increased along the entire wage distribution during the 1980s in the U.S. and since the mid 1990s in Germany. There is evidence for wage polarization in the U.S. in the 1990s, and the increase in wage inequality in Germany was restricted to the top of the distribution before the 1990s. Using an approach developed by MaCurdy and Mroz (1995) to separate age, time, and cohort effects, we find a large role played by cohort effects in Germany, while we find only small cohort effects in the U.S. Employment trends in both countries are consistent with polarization since the 1990s. The evidence is consistent with a technology-driven polarization of the labor market, but this cannot explain the country specific differences.

Even though wage inequality in West Germany started to rise at the top of the wage distribution in the 1980s, this rise was delayed for about ten years at the bottom. Our paper investigates the changes in the German wage structure for full-time working males from 1999 to 2006. We find a noticeable increase of wage inequality during this time period. The difference of the log wages, measured at the 80th and the 20th percentile, rises by about 8 percentage points. Wage inequality increases by about the same extent both at the bottom and the top of the wage distribution. The most prominent explanation in the literature for the increase in wage inequality in the US and the UK is skill-biased technical change (SBTC) resulting in an increasing demand for more highly skilled labor (see the survey by Katz and Autor, 1999). The increase in demand is stronger than the parallel increases in the supply of more highly skilled labor. The developments in Germany for the 1980s are consistent with the SBTC hypothesis (Fitzenberger, 1999), if one allows for the possibility that growing wage inequality in the lower part of the wage distribution is prevented by labor market institutions such as unions and implicit minimum wages implied by the welfare state.

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp10014.pdf Non-technical SummaryWage inequality has been increasing in many industrialized countries over the past decades. Parallel to this trend, coverage by collective wage bargaining has declined strongly in many economies (OECD, 2004). The gender wage gap has also declined in most of these countries. However, these three developments have rarely been investi- Our results show that wage inequality is rising strongly both for males and females, driven not only by wage increases at the top of the distribution, but even more so by real wage losses below the median. At the same time, we find a sharp decline in coverage by collective bargaining. Both coverage by sectoral-level bargaining and coverage by firm-level bargaining is falling over time. Our sequential decomposition results show that all workplace related effects (firm effects and bargaining effects) contribute to the strong rise in wage inequality. We find evidence that the reduction in bargaining coverage contributes in a sizeable way to rising wage inequality and that the bargaining outcomes allow for higher wage flexibility. Nevertheless, these effects are dominated by the firm coefficients effect, which is almost exclusively driven by the sector coefficients effect, meaning that between-and within-industry wage differences drive the observed rise in wage inequality. The drop in collective bargaining coverage takes place almost exclusively within sectors. In addition, personal coefficients contribute to some degree to the increase in wage inequality, again reinforcing the dominance of labor demand effects.In contrast, personal characteristics change in a way to reduce wage inequality. All this adds up to a stagnation of the overall gender wage gap, and only the strong improvement in personal characteristics of females results in a fall of the gender wage gap at the bottom of the wage distribution. The drop in collective bargaining coverage hardly affected the gender wage gap. Despite these changes, the gender wage gap remains almost constant, with some small gains for women at the bottom and at the top of the wage distribution. A sequential decomposition analysis using quantile regression shows that all workplace related effects (firm effects and bargaining effects) and coefficients for personal characteristics contribute strongly to the rise in wage inequality. Among these, the firm coefficients effect dominates,...