Wage Growth and Inequality Change During Rapid Economic Transition

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 16.09.2003, 12:15 - 13:30


Presentation by 

Ira N. Gang (Rutgers University)


East Germany underwent rapid transition from a socialist to a market-oriented economic system after the fall of the Berlin Wall. During the course of this transition East Germany experienced large increases in both its wage level and wage dispersion, with most of the increase in wage dispersion occurring at the beginning of the transition. From 1990 to 2000 real wages in East Germany for men aged 20-60 rose by 118%, while various inequality measures indicate an increase in wage inequality of 25 to 61%. This paper studies the causes of this growth in wages and the changes in wage inequality, the first two moments of the wage distribution. We find that changes in the wage structure due to the transition explains most of wage growth and inequality change in East Germany. We compare our 1990-2000 results for East Germany to West German wage earners during the same period in order to investigate whether convergences took place in terms of mean (level) and dispersion (inequality) of wages.

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