The Unbearable Stability of the German Wage Structure: Evidence and Interpretation

53 Pages Posted: 9 Nov 2000  

Eswar S. Prasad

Cornell University - Dyson School of Applied Economics and Management; Cornell University - Department of Economics; Brookings Institution; NBER; IZA Institute of Labor Economics

Date Written: February 2000

Abstract

This paper uses micro data from the German Socio-Economic Panel to document that the wage structure in West Germany was remarkably stable during 1984-97, with little variation over time in wage or earnings inequality between and within different skill groups. Empirical evidence suggests that this stability is attributable to institutional factors rather than market forces. The rigidity of relative wages, despite relative shifts in labor demand that favor skilled workers, has resulted in sharp declines in employment rates for unskilled workers. The microeconomic evidence is shown to have important implications for interpreting trends in wage shares, capital-labor ratios, and aggregate unemployment.

Keywords: Wage and earnings inequality, returns to human capital, labor market outcomes across skill groups

JEL Classification: J31, E24

Suggested Citation

Prasad, Eswar S., The Unbearable Stability of the German Wage Structure: Evidence and Interpretation (February 2000). IMF Working Paper No. 00/22. Available at SSRN: https://ssrn.com/abstract=245419 or http://dx.doi.org/10.2139/ssrn.245419

Eswar S. Prasad (Contact Author)

Cornell University - Dyson School of Applied Economics and Management ( email )

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HOME PAGE: http://prasad.aem.cornell.edu

Cornell University - Department of Economics ( email )

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Brookings Institution ( email )

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NBER ( email )

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IZA Institute of Labor Economics

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