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EU KLEMS Project


EU KLEMS Working Paper Series

No. 6

Görzig, Bernd, Martin Gornig and Axel Werwatz, Firm Specific Wage Spread in Germany - Decomposition of regional differences in inter firm wage dispersion (September 2005)

Abstract

The purpose of this paper is to sort out firm-related differences from effects that re-sult from different economic structures. A non-parametric decomposition is used to analyse firm level difference between the wage spread in the two major regions of unified Germany. If firm-specific effects explain wage dispersion between firms, a decomposition of the wage dispersion between firms is necessary. The decomposi-tion can help to find out, whether the economy-wide results for different regions are due to the composition of the regional economies by industries and firm-size, or whether the differences are due to firm-specific influences, like distinctions in market power. For Germany, a considerable part of the difference in the wage spread be-tween the East and the West can be explained by different economic structures. However, by far the greater part of the difference in the wage spread between firms in the two parts of the country results from lower wages paid by firms of the same type in East Germany compared with their counterparts in West Germany.

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This project is funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, "Policy Support and Anticipating Scientific and Technological Needs".

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Last changed on: 17 October 2005