Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/103833
Authors: 
Klemm, Marcus
Weigert, Benjamin
Year of Publication: 
2014
Series/Report no.: 
Arbeitspapier, Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung 06/2014
Abstract: 
This paper addresses the importance of compositional changes in the labor force for the development of the wage distribution. Demographic change and higher educational attainment imply a shift toward employees with more experience and/or better education. These groups are characterized by higher relative wages as well as higher within-group wage inequality. Mechanically, these compositional shifts entail a rise in wage inequality. We demonstrate this mechanism theoretically and present empirical evidence using data of the German Socio-Economic Panel from the mid 1990's to 2012. Accounting for the parallel changes in the age structure and the educational background of the labor force, the compositional effects alone can explain up to one quarter of the observed increase in aggregate wage inequality.
Subjects: 
wage structure
inequality decomposition
demographic change
population aging
education
skills
JEL: 
J31
D31
J11
Document Type: 
Working Paper

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