Workplace Heterogeneity and the Rise of West German Wage Inequality

By David Card, Jörg Heining, Patrick M. Kline. Social Science Research Network, 2013

1,430 citations recorded by the source corpus.

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.

Subfields: Economics and Econometrics, Political Science and International Relations

View Paper: https://www.semanticscholar.org/paper/7ca46963a19ae9723b38de62a9636ae39df0b1b4

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Citations in the corpus

Estimation of a Roy/Search/Compensating Differential Model of the Labor Market (2020, neutral): “In particular, our estimated baseline model implies a high degree of match effects.43 However, Card, Heining, and Kline (2013) conclude that match effects are not very important in wage equations using an AKM type of model.”
Discretizing Unobserved Heterogeneity (2017, methodology): “To construct the data generating process (DGP) we first estimate the model using grouped fixed-effects with K = 10 groups, with an iteration starting from a first step based on locationspecific mean log-wages as in (19).”
The Growing Importance of Social Skills in the Labor Market (2017, neutral): “These findings are especially puzzling in light of the rising heterogeneity in worker-specific pay premiums found in studies that use matched employer-employee data (Card et al. 2013, 2016).”
The Adjustment of Labor Markets to Robots (2021, methodology): “To construct this variable, we first impute the individual wages, which are censored at the social security contribution ceiling, using a procedure suggested by Card et al. (2013). We then compute the average daily wage for full-time workers on June 30 of the start and end year for demographic cells”
Learning by working in big cities (2017, neutral): “In particular, since we are interested in worker moves across cities while Card et al. (2013) study worker moves across ﬁrms, we treat cities in our procedure as they treat ﬁrms in theirs to correct for top and bottom coding.”
Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden (2019, neutral): “See Manning (2003) for a comprehensive survey of monopsony effects and Dube et al. (forthcoming) for a recent empirical analysis using online employers. Our empirical findings complement growing evidence for the role of within-firm pay equity constraints. Galuscak et al. (2012, Table 1) survey 15 Eu”
Cyclical Job Ladders by Firm Size and Firm Wage (2018, neutral): “As we have shown, upward mobility via poaching slows in downturns.(11) The facts we uncover in this paper may then have impor(9)See, e.”
Increasing differences between firms: market power and the macro-economy (2018, background): “Most other countries followed, some more quickly (like the U.K.) than others (e.g., Card et al. 2013, show that the increase in German inequality only really started in the mid-1990s).”