Dynamics of Earnings and Hourly Wages in Germany

29 Pages Posted: 1 Nov 2009

See all articles by Michal Myck

Michal Myck

German Institute for Economic Research (DIW Berlin); IZA Institute of Labor Economics

Richard R. Ochmann

German Institute for Economic Research (DIW Berlin)

Salmai Qari

German Institute for Economic Research (DIW Berlin); Berlin School of Economics and Law

Multiple version iconThere are 2 versions of this paper

Date Written: October 2009

Abstract

There is by now a lot of evidence showing a sharp increase in cross-sectional wage and earnings inequality during the 2000s in Germany. Our study is the first to decompose this cross-sectional variance into its permanent and transitory parts for years beyond 2000. Using data from the German Socio-Economic Panel on fulltime working individuals for years of 1994 to 2006, we do not find unambiguous empirical support for the frequent claims that recent increases in inequality have been driven mainly by permanent disparities. From 1994 on, permanent inequality increases continuously, peaks in 2001 but 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: Variance decomposition, covariance structure models, earnings inequality, wage dynamics

JEL Classification: C23, D31, J31

Suggested Citation

Myck, Michal and Ochmann, Richard R. and Qari, Salmai, Dynamics of Earnings and Hourly Wages in Germany (October 2009). DIW Berlin Discussion Paper No. 929, Available at SSRN: https://ssrn.com/abstract=1496812 or http://dx.doi.org/10.2139/ssrn.1496812

Michal Myck (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Richard R. Ochmann

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Salmai Qari

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Berlin School of Economics and Law ( email )

Badensche Strasse 50-51
Berlin, D-10825
Germany

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