Workplace Heterogeneity and the Rise of West German Wage Inequality
We study the role of establishment-specific wage premiums in generating recent increases in West German wage inequality. Models with additive fixed effects for workers and establishments are fit in four distinct time intervals spanning the period 1985-2009. Unlike standard wage models, specifications with both worker and plant-level heterogeneity components can explain the vast majority of the rise in wage inequality. Our estimates suggest that the increasing variability of West German wages results from a combination of rising heterogeneity between workers, rising variability in the wage premiums at different establishments, and increasing assortativeness in the matching of workers to plants. We use the models to decompose changes in wage gaps between different education levels, occupations, and industries, and in all three cases find a growing contribution of plant heterogeneity and rising assortativeness between workers and establishments.
We are grateful to the IAB and to Stefan Bender for assistance in making this project possible, to Karl Schmidt, Robert Jentsch, Cerstin Erler, and Ali Athmani for invaluable programming help, and to the Berkeley Center for Equitable Growth for funding support. We also thank Christian Dustmann, Bernd Fitzenberger, and seminar participants at EUI Florence, Yale, and the NBER Labor Studies meetings for many helpful comments and suggestions. Robert Heimbach, Hedvig Horvath, and Michele Weynandt provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
David Card & JÃ¶rg Heining & Patrick Kline, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 128(3), pages 967-1015. citation courtesy of