UNEMPLOYMENT,LABOR MARKET TRANSITIONS,AND RESIDUAL WAGE DISPERSION

It is commonplace in the debate on Germany's labor market problems to argue that low wage dispersion is a major reason for the high unemployment rate. This paper analyzes the relationship between unemployment and residual wage dispersion for individuals with comparable attributes. In the conventional neoclassical point of view, wages are determined by the marginal product of the workers. Accordingly, increases in union minimum wages result in a decline of residual wage dispersion and higher unemployment. A competing view regards wage dispersion as the outcome of search frictions and the associated monopsony power of the firms. Accordingly, an increase in search frictions causes both higher unemployment and higher wage dispersion. The empirical analysis attempts to discriminate between the two hypotheses for West Germany analyzing the relationship between wage dispersion and both the level of unemployment as well as the transition rates between different labor market states. The findings are not completely consistent with either theory. However, as predicted by search theory, one robust result is that unemployment by cells is not negatively correlated with the within‐cell wage dispersion.     

Wages in the East German Transition Process: Facts and Explanations

We analyze wage developments in the East German transition process both at the macro- and at the microeconomic level. At the macroeconomic level, we draw special attention to the important distinction between product and consumption wages, describe the development of various wage measures, labor productivity and unit labor costs in East Germany in relation to West Germany, and relate these developments to the system of collective wage bargaining. At the microeconomic level, we describe changes in the distribution of hourly wages between 1990 and 1997 and analyze the economic factors determining these changes by way of empirical wage functions estimated on the basis of the Socio-Economic Panel for East Germany. The paper also draws some conclusions on the likely future course of the East–West German wage convergence process.     

Wage Determination in Rural Russia: A Stochastic Frontier Model

This article examines wages in rural Russia after the first decade of economic transition using data from a nationally representative household survey. The stochastic frontier analysis reveals that Russia's rural labour markets place high value on human capital. The overall level of rural wages, however, is very low, with the median wage 10% below the official subsistence level. The gender pay gap severely depresses women's wages. A woman with the same skills as a man is paid only 47% of the man's wage. Rural workers who receive income from their personal plots accept significantly lower wages. Private firms pay considerably higher wages than state or collectively owned firms, but account only for one fifth of rural workers.     

Why do women still earn less than men? Decomposing the Dutch gender pay gap, 1996–2006

Despite major improvements in women's labour market attachment, women still earn considerably less than men. International research shows that the persistence of the gender pay gap may be due to the fact that although the gap in characteristics between men and women is diminishing, changes in the wage structure counteract this change. This article will study whether this ‘swimming upstream’ phenomenon is also playing a role in the rather slow convergence between male and female wages in the Netherlands. Our results indicate that this is not the case; most of the changes in the Dutch wage structure have been rather favourable to women. The lacking convergence in wages has to be explained from the fact that despite the favourable changes, the Dutch wage structure still contains a considerable implicit gender bias.     

"Holding hands at midnight": The paradox of caring labor

Abstract

The gender wage gap in the United States narrowed considerably throughout the 1980s and then more slowly in the 1990s. Using a decomposition methodology and US Current Population Survey data, this study investigates the impact of deindustrialization's continuing shift in employment away from manufacturing to services on the US gender wage gap between 1990 and 2001. The study finds that the widening of the gender wage gap in the service sector caused a slowdown in the narrowing of the US gender wage gap. Within the service sector, two occupational elements affected the growing gender wage gap: women's entry into traditionally male occupations characterized by high wages and high gender wage differentials that resulted in the relative increase in men's wages compared to women's wages in these occupations.     

Wage formation during economic transformation: macroeconomic facts and firm survey evidence from Slovenia

This article provides macroeconomic stylised facts on wage comparisons and microeconomic evidence on how institutional changes, competitive pressures in firms' output markets, human capital and efficiency wage payment affect wage formation during the early stages of transformation. Wages in Slovenia are higher than in other transition Central and Eastern European countries and higher than labour productivity. We use a firm survey panel dataset of Slovenian enterprises to investigate labour cost adjustment and its policy relevance. The results reveal that transformation was not a uniform process as it has induced different labour cost adjustments and wage responses to transformation shocks over time. The hypothesis that labour productivity and competitive pressures in firms' output markets were important for wage formation was not supported. We confirm that rent seeking increased wages in insider, management and employee-owned enterprises in anticipation of privatisation. The effect of human capital was modest and efficiency wage payment was found not to be significant. The hypothesis of unionisation in Slovenian enterprises was not supported.     

Are children driving the gender wage gap?

We examine how much children and the responsibilities related to them contribute to the divergence of men's and women's wages, and consequently, to the formation of the gender wage gap. To derive the relative contribution of gender‐specific parent gaps to the overall gender wage gap, we provide a modification of the Oaxaca–Blinder decomposition and include simultaneous corrections for selection into employment and parenthood. The results show that the fatherhood wage premium contributes most significantly to the gender wage gap, especially in Poland. The motherhood penalty is also significant, while the role of the gender gap among childless individuals is small.     

The impact of wages on job search in a transition economy - evidence with data from Eastern Germany

This study is concerned with the impact of wages on job search decisions in Eastern Germany immediately after reunification and in later periods. Several concepts measuring wage effects are used. The results of bivariate probit estimates with incomplete classification for a global and local job search show that the wage level had stronger effects on the former than on the latter job search decision directly after the collapse of the Berlin Wall. The degree of satisfaction with current income and the earnings capacities were irrelevant for the search decision. Low-paid East German workers had a higher propensity to search for a new job in the old Länder than others. This is contrary to the misleading result of isolated estimates about the job search in Western Germany. In the subsequent periods the situation has changed. The difference of earnings capacities between Eastern and Western Germany, specific East German wage premiums and intraregional wage inequality affect the decision to search for a new job in the west.For helpful comments I thank Michael Burda, Knut Gerlach, Robert A. Hart, Stefan Niermann, Liz Regan and two referees.     

Firm wage differentiation in Eastern GermanyA non-parametric analysis of the wage spread

In Eastern Germany, wage differentiation between firms has clearly grown, parallel to individual wage differentials. Nevertheless, the wage spread between firms is still much less than in Western Germany. In this paper, a non‐parametric decomposition is used to analyze the difference between the wages spread in the two parts of Germany. Only part of the difference can be explained by different economic structures in Eastern Germany. By far, the greater part of the difference in the wage spread between firms in the two parts of the country is due to the fact that differences in wages paid by firms of the same type in Eastern Germany are much less than those of their counterparts in Western Germany. A striking result of the analysis is that the gap in the wage variance between Eastern and Western Germany is increasing.     

Male–female wage discrimination in Chinese industryInvestigation using firm‐level data1

We use firm‐level data to analyze male–female wage discrimination in China's industry. We find that there is a significant negative association between wages and the share of female workers in a firm's labour force. However, we also find that the marginal productivity of female workers is significantly lower than that of male workers. Comparing wage gaps and productivity gaps between men and women, we notice an intriguing contrast between state‐owned enterprises (SOEs) and private firms. The wage gap is smaller than the productivity gap in SOEs, while the converse is true for private firms. These results suggest that women in the state sector receive wage premiums, whereas women in the private sector face wage discrimination.     

The dynamics of wage determination in Romania

This article examines wage developments in Romania over the last 20 years, discusses the evolving role of government wage policy and structural labour market changes, and analyses the dynamics of the wage determination process. It finds that government wage policy has had a significant demonstration effect on private sector wages, driven mainly by policy decisions over the past few years. The article also finds strong causality from private sector wages to wages in state‐owned enterprises (SOEs) and government. No causality was found for changes in government wages to wages in SOEs or from SOE wages to private sector wages.     

Is Downward Wage Flexibility the Primary Factor of Japan's Prolonged Deflation?

By using both macro‐ and micro‐level data, this paper investigates how wages and prices evolved during Japan's lost two decades. We find that downward nominal wage rigidity was present in Japan until the late 1990s, but disappeared after 1998 as annual wages became downwardly flexible. Moreover, nominal wage flexibility may have contributed to Japan's relatively low unemployment rates. Although macro‐level movements in nominal wages and prices seemed to be synchronized, such synchronicity is not observed at the industry level. Therefore, wage deflation does not seem to be a primary factor of Japan's prolonged deflation.     

Testing for uniform wage trends in West-Germany: A cohort analysis using quantile regressions for censored data

The rise of unemployment in West Germany is often attributed to an inflexibility of the wage structure in the face of a skill bias in labor demand trends. In addition, there is concern in Germany that during the 70s and 80s unions were pursuing a too egalitarian wage policy. In a cohort analysis, we estimate quantile regressions of wages taking account of the censoring in the data. We present a new framework to describe trends in the entire wage distribution across education and age groups in a parsimonious way. We explore whether wage trends are uniform across cohorts, thus defining a macroeconomic wage trend. Our findings are that wages of workers with intermediate education levels, among them especially those of young workers, deteriorated slightly relative to both high and low education levels. Wage inequality within age-education groups stayed fairly constant. Nevertheless, the German wage structure was fairly stable, especially in international comparison. The results appear consistent with a skill bias in labor demand trends, recognizing that union wages are only likely to be binding floors for low-wage earners.     

ECONOMIC RELATIONS BETWEEN WOMEN AND THEIR PARTNERS: AN EAST AND WEST GERMAN COMPARISON AFTER REUNIFICATION

abstract

This article compares women's and men's economic relations in East and West Germany following the 1990 reunification to exemplify the impact of varying opportunity structures on women's relative contribution to family income. West Germany's takeover set in motion a rapid transformation of East German institutions and employment structures. The analysis shows that women in West Germany became less dependent on their partners in the 1990s, largely because fewer women were housewives without earnings. In contrast, the contributions of women to the family economy in East Germany fell between 1990 and 1996. Afterwards, women in East Germany regained some of their economic power because of their partners' increasing difficulties sustaining employment. A multivariate analysis showed that the fact that women in West Germany were more likely to work less or not at all – especially if they were married or had children – accounted for much of the difference.     

Insider-outsider influences on industry wages

The persistence of high rates of unemployment in Europe has focused renewed attention on the wage determination process. One aspect which has received particular attention recently is the extent to which wages are determined by insiders, with outsiders having little impact on the wage bargain. If outsiders are disenfranchised in the wage determination process, they may be unable to underbid themselves into employment. The insider-outsider model, and the associated implication of hysteresis, thus provides a possible explanation for persistent involuntary un-employment. Most empirical work on the importance of the insider-outsider model and hysteresis has been done at the aggregate level, either by testing whether wage growth is related to the level or the change in unemployment, or by testing if employment or unemployment follows a random walk. This paper extends both of these lines of analysis to the industry level. Based on a specification which nests alternative models of the wage determination process, estimation results are presented for fifteen industries using annual data for fourteen industrialized countries, and for pooled time-series cross-country data. The paper also tests the hypothesis that only industry-specific variables are important to the determination of industry wages and considers whether differences in industry wage determination might help to understand cross-country differences in unemployment. The results offer considerable support to the insider view of wage determination. Industries in which wages seem to be determined by a natural rate/Phillips curve model — the primary competing model considered in the paper — appear to be the exception rather than the rule. Moreover, at the industry level hysteresis does not appear to characterise wage formation in the high-unemployment European countries to a greater extent than in North America and Japan.     

State-led or Capital-driven? The Fall of Bretton Woods and the German Currency Float Reconsidered

This article argues that the lead role of West Germany in the transition from fixed to floating exchange rates sits uneasily with accounts that conceptualise the breakdown of Bretton Woods in terms of hegemonic power politics, the influence of global economic interests or a neoliberal paradigm shift. Short of a convincing explanation, the German currency float seems to be a prime example of states surrendering to financial markets. The article offers an alternative interpretation that focuses on the nexus between state agency and capital accumulation. German authorities were indeed confronted with a destabilising influx of dollars that undermined their available policy options. But as they realised that these inflationary flows emanated from the same export-oriented forces in whose interest they had sought to hold on to an undervalued currency, they chose floating in order to regain command over liquidity and create an anti-inflationary programme that was at the heart of Germany's subsequent ability to better manage the 1970s crisis than its partners. Attention to the particular circumstances and consequences of these ‘structured choices’, I conclude, may offer a more compelling account of financial globalisation as a state-led project than those which generalise from the US context.     

The Effects of Gender Differences in Career Interruptions on the Gender Wage Gap in Spain

The aim of this paper is to measure the influence of past employment interruptions on current wages and to analyze how these interruptions contribute to the gender wage gap. The discontinuity in labor trajectories of Spanish employees from 2005 to 2010 is examined by measuring the duration of unemployment periods from employees’ first Social Security affiliation to the last job at which they were employed. Through the use of the database “Muestra Continua de Vidas Laborales” (MCVL), the estimated gender wage gap is found to be 13.1 percent. Introducing an index of interruptions as an explanatory variable, the results show that interruptions have a negative impact on both men's and women's wages. These interruptions explain 7.4 percent of the daily gender wage gap in Spain, primarily because women experience more interruptions in employment than men.     

Realitic and Analytic Syntheses of Macro- and Microeconomics

We study the impact of employer's opportunism on wage rigidity in capitalist companies by arguing that the need to fix wages is crucially influenced by the asymmetric distribution of decision-making power and information in favor of the stronger contractual party — the employer, and against the weaker contractual party — employees. The capitalist entrepreneur can make decisions, whose negative consequences are borne by workers in terms of lower wages and more intense work pace. Excessive wage reductions in the face of negative exogenous shocks or too risky investment decisions represent the main instances of such opportunistic behavior. Fixed wages can represent workers' best response to the emerging risk of the employer moral hazard, but this implies a heightened risk of layoffs since wages and employment levels cannot be fixed at the same time. Besides discussing piece rate contracts, profit-sharing and codetermination as counterexamples, we observe worker cooperatives which depart from the presence of contrasting interests and private information in the principal-agent framework. Indeed, several empirical studies have shown greater employment stability and wage flexibility in worker cooperatives vis-à-vis the capitalist firm.     

WHITHER GERMANY AND THE EMU IN A CHALLENGING ENVIRONMENT?*

While the German economy may currently be a bright spot in Europe, it has faced substantial challenges in recent years. Moreover, tensions are rising regarding Germany's responsibilities and opportunities as a member of the European Monetary Union. Other studies have documented the difficulties that Germany has encountered as a result of the unification and further integration of Europe. This paper adds to that literature by using an aggregate translog cost function approach to examine the relationships among inputs of domestic capital and labour and imports. Our findings indicate that the input pairs of capital‐labour and labour‐imports are substitutes. The substitutes relationship between labour and imports, which has become stronger over time, suggests that increasing globalisation will add to Germany's unemployment woes. Capital and imports appear to be weak complements, but that relationship is not statistically significant. The results also suggest that imports are playing an increasingly important role in Germany's aggregate production, accentuating the role of the international environment.