Mercantilist dualization: the introduction of the euro, redistribution of industry rents, and wage inequality in Germany, 1993–2008

Abstract

The current debate over distributional implications of the crisis-ridden Economic and Monetary Union (EMU) is heavily biased towards international accounts. Little attention is paid to who wins and who loses out intranationally. I argue that in Germany the EMU has reinforced dualization, the insider-outsider cleavage in the country's welfare state and production model. To scrutinize this argument, I analyze longitudinal linked employeremployee data (N>9.6 mio) and pursue a mechanistic three-step identification strategy: First, I illustrate how the introduction of the Euro distorted real interest and exchange rates within the Eurozone. Second, I demonstrate how these imbalances redistributed rents from the domestic sector, in particular from construction, to the core manufacturing industry. Third, I show how this shift in industry rents reverberated to the wage distribution and increased inequality. The study contributes to resolve the puzzle why wage inequality in Germany increased through a fanning out of the wage distribution whereas countries similarly exposed to technological change and globalization grew unequal through a polarization of their wage distribution.

The Relational Nature of Employment Dualization: Evidence from Subcontracting Establishments

“…This significantly bolsters the credibility of a causal interpretation of the estimates. But insofar as the total country-level effect of dualization on the divide between core and peripheral workers also entails between-industry components (Dustmann et al, 2014;Ochsenfeld, 2017), these necessarily complement the establishment-level results presented here. Table A1: Description of variables in establishment-level regression…”

The Relational Nature of Employment Dualization: Evidence from Subcontracting Establishments

“…This significantly bolsters the credibility of a causal interpretation of the estimates. But insofar as the total country-level effect of dualization on the divide between core and peripheral workers also entails between-industry components (Dustmann et al, 2014;Ochsenfeld, 2017), these necessarily complement the establishment-level results presented here.…”