The Transition in East Germany: When is a Ten Point Fall in the Gender Wage Gap Bad News?

37 Pages Posted: 11 Jun 2000 Last revised: 9 Nov 2022

See all articles by Jennifer Hunt

Jennifer Hunt

McGill University - Department of Economics; Rutgers University; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; National Bureau of Economic Research (NBER)

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Date Written: September 1997

Abstract

Since monetary union with western Germany on 1 July 1990, eastern female monthly wages have risen by 10 percentage points relative to male wages, but female employment has fallen 5 percentage points more than male employment. Using the German Socio-Economic Panel to study the years 1990-1994, I show that along with age, the wage of a worker in 1990 is the most important determinant of the hazard rate from employment. Differences in mean 1990 wages explain more than half of the gender gap in this hazard rate, since low earners were more likely to leave employment, and were disproportionately female. The withdrawal from employment of low earners can explain 40% of the rise in relative female wages. Competing risks analysis reveals that the wage has its effect through layoffs, and hence through labor demand, which is consistent with the hypothesis that union wage rises have caused the least productive to be laid off. There is no evidence that reduction in child care availability is a major factor in reducing female employment rates.

Suggested Citation

Hunt, Jennifer and Hunt, Jennifer, The Transition in East Germany: When is a Ten Point Fall in the Gender Wage Gap Bad News? (September 1997). NBER Working Paper No. w6167, Available at SSRN: https://ssrn.com/abstract=225927

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