Decreasing Wage Mobility in Germany

Cross-section inequality increased in the last decade in Germany. Wage mobility can at least partly offset the increase in cross-section inequality and thus leads to a better understanding of inequality and poverty in a society. If wages are immobile, rising cross-section inequality is associated with a rising inequality of lifetime earnings. On the other hand, the extreme case of total mobility would resemble a lottery re-starting at the beginning of every time period and repositioning the individual at random in the wage distribution. The study at hand analyses the development of the wage mobility in Germany over the last 25 years. The data base of this empirical study is the German Socio-economic Panel (SOEP) for the time period 1984 to 2007, focusing on West Germans. The SOEP is a representative panel data set, which surveys about 11,000 households with 20,000 persons. Wage mobility in terms of the paper at hand is measured by the degree to which ranks are reversed over a 4-year time period where each rank represents one of 100 percentiles of the overall hourly wage distribution. The goal is to look at the individual turnover of persons within the wage distribution at the micro level to identify properties affecting wage mobility. The main findings show that wage mobility has decreased over time, while inequality has increased. Mobility is highest in the middle section of the distribution and highest for persons aged 30-39 years. Individual upgrades in the wage distribution are more likely to occur for university graduates, younger workers, employees in larger firms and for persons working in the public sector, as well as for white-collar workers and less likely for persons who faced an unemployment period in the time of observation. Wages are more volatile in the low-wage sector and for individuals moving downwards in the wage distribution.

Gernandt, Johannes (2009), Decreasing Wage Mobility in Germany, ZEW Discussion Paper No. 09-044, Mannheim.