Gang, I a N.; Yun, Myeong-Su
A icle
Decomposing Male Inequali y Change in Eas Ge many
Du ing T ansi ion
Schmolle s Jah buch – Zei sch i ü Wi scha s- und Sozialwissenscha en. Jou nal o Applied
Social Science S udies
P o ided in Coope a ion wi h:
Duncke & Humblo , Be lin
Sugges ed Ci a ion: Gang, I a N.; Yun, Myeong-Su (2003) : Decomposing Male Inequali y Change
in Eas Ge many Du ing T ansi ion, Schmolle s Jah buch – Zei sch i ü Wi scha s- und
Sozialwissenscha en. Jou nal o Applied Social Science S udies, ISSN 1865-5742, Duncke &
Humblo , Be lin, Vol. 123, Iss. 1, pp. 43-53,
h ps://doi.o g/10.3790/schm.123.1.43
This Ve sion is a ailable a :
h ps://hdl.handle.ne /10419/292037
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Decomposing Male Inequali y Change
in Eas Ge many Du ing T ansi ion
By I a N. Gang and Myeong-Su Yun*
Abs ac
This pape s udies he cause o he changes in male wage inequali y in Eas Ge many
du ing i s ansi ion om a socialis o a ma ke -o ien ed economic sys em. We a e in-
e es ed in how much o he change in he dispe sion o wages can be explained by he
changes in he cha ac e is ics o wo ke s and how much can be explained by he
changes in e u ns o he cha ac e is ics o wo ke s.
JEL Classi ica ion: D 30, J 30
1. In oduc ion
Du ing he cou se o Eas Ge many’s economic ansi ion, he e was an ap-
pa en ly subs an ial widening in wage dispe sion. Va ious inequali y measu es
indica e ha he wage inequali y inc eased be ween 25 % and 61 % ela i e o
he le el in 1990 (Gang/Yun, 2002).
1
This pape s udies he causes o he
changes in wage inequali y measu ed in e ms o a iance o log-wages, ask-
ing wha ac o s explain he change in wage dispe sion. We a e in e es ed in
how much o he change in he dispe sion o wages can be explained by he
changes in he cha ac e is ics o wo ke s and how much can be explained by
he changes in e u ns o cha ac e is ics o wo ke s.
The e is a small li e a u e on inequali y change in Eas Ge many. F anz/
S eine (2000) and Bu da/Hun (2001) add ess changes in dis ibu ion o
hou lywages om 1990–1997, inding ha inequali y inc eases. Some pape s
Schmolle s Jah buch 123 (2003) 1
Schmolle s Jah buch 123 (2003), 43–54
Duncke & Humblo , Be lin
* Myeong-Su Yun’s wo k was suppo ed by he CIBC P og am in Human Capi al
and P oduc i i y, Depa men o Economics, Uni e si y o Wes e n On a io. Pa o his
wo k was done while Myeong-Su Yun isi ed he Depa men o Economics, Ru ge s
Uni e si y. An ea lie e sion o his pape was p esen ed a he 5
h
In e na ional Ge -
man Socio-Economic Panel Use s Con e ence, July 3–4, 2002, Be lin, Ge many. We
especially app ecia e he commen s o Jenni e Hun .
1Gang/Yun (2002) examines he Gini coe icien , he coe icien o a ia ion, he
Theil index, he log-wage di e en ials be ween op and bo om 10 % and he a iance
o log-wages.
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44 I a N. Gang and Myeong-Su Yun
(e.g., Ab aham/Houseman (1995), Hun (2002), K uege /Pischke (1995))
discuss he e ec s o he ansi ion in e ms o wage inequali y and he gende
wage gap. Biewen (2000) ex ensi ely analyzes income inequali y changes
(based on ne mon hly household income), inding inc eased inequali y in Eas
Ge many a e uni ica ion. Gang/Yun (2002) analyze bo h wage g ow h and
he changes in wage dispe sion in a uni ied amewo k, making compa isons
be ween Eas and Wes Ge many om 1990–2000. Gene ally, all o hese pa-
pe s ind a widening dispe sion o household income and wages.
In his pape , we employ a newly de eloped Blinde -Oaxaca ype inequal-
i y decomposi ion me hod o analyzing he change in wage inequali y since
Eas Ge many’s uni ica ion wi h Wes Ge many. Ou inequali y decomposi-
ion me hod (see Yun, 2002) allows us o ind no only he g oss con ibu ion
o each ac o o he changes in wage inequali y, bu also he p ice and quan-
i a i e e ec s o each ac o by u ilizing in o ma ion con ained in he ea n-
ings equa ions. The s anda d Blinde -Oaxaca (Blinde , 1973; Oaxaca, 1973)
decomposi ion explains wage di e en ials in e ms o di e ences in indi i-
dual cha ac e is ics (cha ac e is ics e ec ) and di e ences in he coe icien s
o he wage equa ions (coe icien s e ec ). The me hodological inno a ion
in oduced by Yun (2002), which is based on Oaxaca’s decomposi ion me h-
odology, allows us o de i e hese ypes o e ec s o changes in wage dis-
pe sion, and o e comes some di icul ies in he ea lie me hodologies p o-
posed by Juhn/Mu phy/Pie ce (1993) and Fields (2001). We employ he
1990 h ough 2000 wa es o he Ge man Socioeconomic Panel (GSOEP), a
comp ehensi e panel o household and indi idual da a.
2
Collec ion in Eas
Ge many began in May 1990. We es ic ou sample o men aged be ween
20 and 60 who a e no in school o in o mal occupa ional aining, wi h eal
be o e ax wages (in 1995 DM) less han 100 DM pe hou . We exclude he
sel -employed, hose on ma e ni y lea e, in ag icul u e, and who we e o igin-
ally in he sample bu mo ed om Eas o Wes Ge many. Fo each wa e,
we pe o m ou analysis on all men mee ing hese c i e ia (unbalanced sam-
ple).
Figu e 1 p esen s he Eas Ge man male mean hou ly wage a es and he
a iance o log-wages o each yea om 1990 o 2000, no malized o 1990 =
1.00 o compa ison pu poses.
3
The g ow h in mean wages s ands ou , espe-
cially he doubling o mean wages om 1990 o 1994. Wage inequali y mea-
su ed by he a iance o log-wages inc eases om 1990 o 2000 by 58.1 %. I
is in e es ing ha mos o he inc ease in wage inequali y occu ed be ween
he i s wo yea s (1990 o 1991), while he wage g ow h was achie ed om
Schmolle s Jah buch 123 (2003) 1
2We use he in e na ional e sion o he GSOEP, which is a 95 % sample o he Ge -
man e sion. Fo a ull desc ip ion, see h p://www.diw.de/soep/soep.h m
3The inequali y measu es a e cons uc ed using popula ion weigh s p o ided in he
GSOEP da a.
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Decomposing Male Inequali y Change in Eas Ge many Du ing T ansi ion 45
1. Mean hou ly wage a es in e ms o 1995 cons an Ge man Ma ks.
2. Popula ion weigh s gi en in he GSOEP da a a e used o calcula ion.
3. S anda dized measu es, 1990=1.00.
Figu e 1: Wage G ow h and Changes in Male Wage Inequali y (Eas Ge many)
1990 o 1994. F om 1991 o 2000 wage inequali y luc ua es wi hou much
o e all change.
Unde socialism we would expec ha he bias owa d egali a ianism would
ha e supp essed wage inequali y. Ou simple calcula ions show ha among
men wage dispe sion as well as absolu e wages ha e inc eased du ing he an-
si ion. In his pape , we will s udy he sou ces o he changes in wage inequal-
i y: Ha e he changes in wo ke s’ cha ac e is ics caused he inc ease in wage
inequali y?; Ha e he changes in e u ns in wo ke s’ cha ac e is ics due o he
changes in he economic sys em caused he widening o wage inequali y?
In he nex sec ion we ou line ou me hodology. Sec ion 3 discusses ou de-
composi ion esul s, and Sec ion 4 concludes.
2. Explaining Changes in Inequali y
using Ea nings Equa ion
We a e in e es ed in explaining he change in wage dispe sion (inequali y)
in Eas Ge many ha has occu ed since uni ica ion. Yun (2002) de elops a
Schmolle s Jah buch 123 (2003) 1
1
1.5
2
2.5
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Wages Va iance o Log-Wages
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46 I a N. Gang and Myeong-Su Yun
new decomposi ion me hod o he changes in wage inequali y measu ed in
e ms o a iance o log-wages u ilizing he in o ma ion con ained in he ea n-
ings equa ion.
Le wages be gene a ed om he ollowing eg ession equa ions (ea nings
equa ions)
yA
0A
X
k
k
ÿ
1
k
1
kAxkA
eAand
1
yB
0B
X
k
k
ÿ
1
k
1
kBxkB
eB
;
whe e y
log
Y
, and xk
;
e a e he k
h
exogenous a iable and esiduals, e-
spec i ely, and
A
;
B.
A ea u e o he newly de eloped decomposi ion me hod o wage inequal-
i y is ha i uses he in o ma ion con ained in he ea nings equa ion, i.e., i
u ilizes he coe icien s o he ea nings equa ion. The me hod explains he
changes in wage inequali y in e ms o cha ac e is ics e ec , coe icien s e -
ec and esiduals e ec simila o he Blinde -Oaxaca decomposi ion o wage
g ow h.
F om equa ion (1), we ind he ollowing iden i y,
2
y
P
K
ÿ
1
k
1
kxk
;
y
e
;
y,
whe e
e
;
y
2
ei OLS is used o es ima ion o he equa ion (1). Fields
(2001) de ines he ela i e ac o inequali y weigh o a ac o kusing he
OLS es ima e o he coe icien o he ea nings equa ion as
sk
kxk
;
y
2
y
k
1
xk
1
xk
;
y
y
;
whe e
xkis he s anda d de ia ion o xkand
xk
;
y
xk
;
y
xk
y.
Fields applies he ela i e ac o inequali y weigh o s udy changes in wage
inequali y o e ime. Fields’ me hod, howe e , does no decompose he
changes in wage inequali y in e ms o cha ac e is ics, coe icien s and esi-
duals e ec s. On he o he hand, Juhn/Mu phy/Pie ce (1993) explain
changes in wage inequali y in e ms o cha ac e is ics, coe icien s and esi-
duals e ec s, and s udy he changes only a agg ega e le el wi hou iden i y-
ing he ole o each a iable. Yun (2002) uni ies he me hods o Fields (2001)
and Juhn/Mu phy/Pie ce (1993).
Acco ding o he uni ied me hod, he changes in he a iance o log-wages
may be decomposed as ollows;
Schmolle s Jah buch 123 (2003) 1
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Decomposing Male Inequali y Change in Eas Ge many Du ing T ansi ion 47
2
yA
ÿ
2
yB
X
k
K
ÿ
1
k
1
skyA
1
2
yA
ÿ
skyB
1
2
yB
X
k
K
ÿ
1
k
1
sky
31
2
y
3ÿ
sky
31
2
y
3
skyA
1
2
yA
ÿ
skyB
1
2
yB
X
k
K
ÿ
1
k
1
kB
1
xkA
1
xkA
;
y
31
y
3ÿ
kB
1
xkB
1
xkB
;
yB
1
yB
X
k
K
ÿ
1
k
1
kA
1
xkA
1
xkA
;
yA
1
yA
ÿ
kB
1
xkA
1
xkA
;
y
31
y
3
2
aA
ÿ
2
eB
;
2
whe e y
3
0B
P
k
K
ÿ
1
k
1
kBxkA
eAand an index K ep esen s e o e m.
The i s , second and las e ms o he equa ion (2) espec i ely ep esen
he cha ac e is ics e ec , coe icien s e ec and esiduals e ec . These a e
based on he in o ma ion con ained in he ea nings equa ion (1).
3. Analysis – Empi ical Resul s
We apply he uni ied inequali y decomposi ion o Yun (2002) o analyze
he coe icien and cha ac e is ics e ec s ha lie behind he o e all changes in
wage inequali y, using he a iance o log-ea nings as ou inequali y measu e.
In o de o pe o m ou wage inequali y decomposi ions, we es ima e wage
equa ions o 1990 and 2000 using OLS.
Table 1 p esen s he sample means o he a iables we use in ou analysis.
We es ic ou sel es o basic a iables o ou wage analysis: expe ience, edu-
ca ion, occupa ion, i m size and indus y. Table 1 shows some changes in Eas
Ge many o e he decade since he uni ica ion.
Educa ion and expe ience inc ease sligh ly om 1990 o 2000. The e is a
s a k change in occupa ion, wi h blue colla wo ke s alling by 9 %, and scien-
is /manage s and o ice/business/se ice job holde s (p esumably whi e-
colla wo ke s) inc easing by abou 4.5 % each. The e is a ma ked mo emen
o smalle i m sizes. The e a e also indus ial shi s, he mos no able being
he decline in he anspo a ion/pos al indus ies, and, no ably, an inc ease in
he cons uc ion sec o by 10 % om 1990 o 2000.
Table 2 epo s he wage equa ion es ima es o Eas Ge man males. In bo h
1990 and 2000 expe ience is signi ican and ollows a U-shape. Educa ion
adds o wages, wi h he e u n o an addi ional yea o schooling inc easing
Schmolle s Jah buch 123 (2003) 1
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48 I a N. Gang and Myeong-Su Yun
om 1990 o 2000. Occupa ion, i m size, and indus y di e en ially a ec
wages, and he e ec s seem o a y om 1990 o 2000.
Table 1
Sample Means
1990 2000
Wages (cons an 1995 DM) 8.292 (2.670) 18.080 (7.326)
Expe ience 20.846 (11.274) 22.407 (9.845)
Educa ion (yea ) 12.258 (2.351) 12.554 (12.269)
Occupa ion
Scien is /Manage * 0.192 (0.394) 0.233 (0.423)
O ice/Business/Se ice 0.152 (0.359) 0.193 (0.394)
Blue Colla 0.655 (0.475) 0.574 (0.494)
Fi m Size
Size
<
20 * 0.107 (0.309) 0.296 (0.457)
Size 20 –
<
200 0.206 (0.405) 0.415 (0.493)
Size 200 –
<
2000 0.347 (0.476) 0.129 (0.335)
Size 2000+ 0.340 (0.474) 0.160 (0.367)
Indus y
Ene gy/Wa e /Mining 0.074 (0.262) 0.033 (0.179)
Chemicals/Syn he ics 0.071 (0.257) 0.038 (0.192)
I on/Mechanical 0.167 (0.373) 0.134 (0.341)
Elec ical/Clo hing 0.189 (0.392) 0.129 (0.335)
Cons uc ion 0.131 (0.337) 0.238 (0.426)
Sales 0.050 (0.219) 0.088 (0.283)
T anspo a ion/Pos al 0.130 (0.337) 0.071 (0.256)
Finance/Educa ion /Heal h/Legal 0.114 (0.317) 0.150 (0.357)
Se ice 0.016 (0.125) 0.032 (0.175)
Public Adminis a ion* 0.058 (0.234) 0.088 (0.283)
Sample Size 1011 663
S anda d de ia ions a e epo ed in pa en heses.
* indica es a e e ence g oup in he eg ession analysis.
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Decomposing Male Inequali y Change in Eas Ge many Du ing T ansi ion 49
Table 2
Reg ession Resul s o Ea nings Equa ions
1990 2000
Cons an 1.429* (0.100) 1.944* (0.122)
Expe ience 0.017* (0.003) 0.015* (0.006)
Exp ience
2
/100 -0.030* (0.007) -0.027* (0.012)
Educa ion (yea ) 0.039* (0.005) 0.052* (0.007)
Occupa ion
O ice/Business/Se ice -0.120* (0.033) -0.128* (0.043)
Blue Colla -0.090* (0.030) -0.111* (0.041)
Fi m Size
Fi m Size 20 –
<
200 0.068* (0.031) 0.142* (0.029)
Fi m Size 200 –
<
2000 0.086* (0.029) 0.318* (0.042)
Fi m Size 2000+ 0.118* (0.030) 0.281* (0.041)
Indus y
Ene gy/Wa e /Mining 0.064 (0.047) 0.140 (0.080)
Chemicals/Syn he ics -0.010 (0.047) -0.051 (0.077)
I on/Mechanical 0.009 (0.042) 0.045 (0.058)
Elec ical/Clo hing -0.046 (0.041) 0.032 (0.060)
Cons uc ion -0.005 (0.043) 0.047 (0.058)
Sales -0.097 (0.050) -0.132* (0.060)
T anspo a ion/Pos al 0.004 (0.042) -0.020 (0.063)
Finance/Educa ion /Heal h/Legal -0.063 (0.042) 0.005 (0.056)
Se ice -0.256* (0.074) -0.142* (0.082)
Adjus ed R
2
0.223 0.306
F Value 18.11 18.13
Sample Size 1011 663
1. S anda d e o s a e epo ed in pa en heses, and * means s a is ically signi ican a 5%.
2. Re e ence g oups a e scien is /manage o occupa ion, size less han 20 o i m size and
public adminis a ion o indus y.
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50 I a N. Gang and Myeong-Su Yun
Table 3
Decomposi ion o Changes in Male Inequali y (1990–2000)
Ea ning Inequali y
a)
Decomposi ion
b)
1990 2000 Cha ac e is ics
E ec Coe icien s
E ec
To al 0.086 (100.0) 0.135 (100.0) 0.000 (0.6) 0.023 (46.6)
Human Capi al 0.013 (14.7) 0.020 (14.9) -0.001 (-1.0) 0.008 (16.2)
Expe ience 0.005 (6.0) 0.003 (2.1) -0.001 (-2.5) -0.001 (-2.2)
Expe inece
2
/100 -0.002 (-2.7) -0.001 (-1.1) 0.000 (0.8) 0.001 (1.1)
Educa ion 0.010 (11.4) 0.019 (13.8) 0.000 (0.6) 0.009 (17.3)
Occupa ion 0.004 (4.4) 0.005 (3.8) -0.001 (-1.0) 0.002 (3.7)
O ice/Business/
Se ice 0.001 (1.1) 0.000 (0.0) -0.000 (-0.8) -0.001 (-1.1)
Blue Colla 0.003 (3.3) 0.005 (3.8) -0.000 (-0.3) 0.002 (4.8)
Fi m Size 0.002 (2.3) 0.015 (10.9) 0.000 (0.5) 0.013 (25.3)
Size 20 –
<
200 -0.000 (-0.4) 0.000 (0.0) 0.001 (1.2) -0.000 (-0.4)
Size 200 -
<
2000 0.000 (0.2) 0.008 (6.0) 0.000 (0.8) 0.008 (15.4)
Size 2000+ 0.002 (2.6) 0.007 (4.9) -0.001 (-1.5) 0.005 (10.3)
Indus y 0.002 (2.3) 0.004 (2.7) 0.001 (2.1) 0.001 (1.4)
Ene gy/Wa e /Mining 0.000 (0.5) 0.001 (0.9) -0.000 (-0.2) 0.001 (1.8)
Chemicals/Syn he ics -0.000 (-0.0) -0.000 (-0.0) -0.000 (-0.0) -0.000 (-0.1)
I on/Mechanical 0.000 (0.1) 0.000 (0.1) -0.000 (-0.1) 0.000 (0.1)
Elec ical/Clo hing 0.000 (0.4) -0.001 (-0.1) -0.000 (-0.0) -0.000 (-0.8)
Cons uc ion 0.000 (0.0) -0.000 (-0.5) 0.000 (0.0) -0.001 (-1.4)
Sales 0.001 (0.7) 0.002 (1.7) 0.000 (0.6) 0.001 (2.8)
T anspo a ion/Pos al -0.000 (-0.0) 0.000 (0.0) 0.000 (0.0) 0.000 (0.1)
Finance/Educa ion /
Heal h/Legal -0.000 (-0.3) 0.000 (0.0) -0.000 (-0.7) 0.001 (1.4)
Se ice 0.001 (1.0) 0.001 (0.6) 0.001 (2.5) -0.001 (-2.5)
Residuals 0.065 (76.3) 0.092 (67.7) 0.026 (52.7)
a) Sha es o a iance o log-wages in 1990 (0.086) and 2000 (0.135) a e epo ed in pa en heses.
b) Sha e o di e ences in a iance o log-wages be ween 1990 and 2000 (0.050) a e epo ed in
pa en heses.
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