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Baumgarten, Daniel; Felbermayr, Gabriel; Lehwald, Sybille (April 2016): Dissecting between-plant and within-plant wage dispersion. Evidence from Germany. Ifo Working Paper No. 216
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Abstract

We analyze the most important drivers of the recent rise in overall German wage dispersion and pin down the relative contribution of central establishment and worker characteristics. Moreover, we separately investigate the drivers of between as well as within establishment wage dispersion. Using rich linked employer-employee data for the German manufacturing sector between 1996 and 2010, we explicitly account for the role of a plant’s collective bargaining regime, its technological status and its export behavior. In order to disentangle the contribution of each single variable to the rise in wage dispersion, relative to other variables, requires a rich and comprehensive framework. To this end we apply a state-of-the-art decomposition method which is based on recentered influence function (RIF) regressions. We find that the decline in collective bargaining coverage as well as changes in the skill- and occupation-related wage structure are main sources of increased overall wage dispersion. Regional employment shifts, differences between collectively covered and uncovered plants and increased sorting play a key role for changes in between establishment wage dispersion, while the technology intenstiy of a plant is the most important driver of within plant wage inequality