Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/224535 
Authors: 
Year of Publication: 
2020
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2020: Gender Economics
Publisher: 
ZBW - Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
This paper provides evidence that labor reallocation from the manufacturing into the non-manufacturing sector causes an increase in sorting of high-skilled (low-skilled) workers into high-paying (low-paying) firms and thereby triggers a rise in wage inequality. I use data on 50% of all West German male employees and exploit industry-level variation in trade-induced labor reallocation into the non-manufacturing sector, stemming from Germany's trade integration with China and Eastern Europe. The results suggest that labor reallocation into the non-manufacturing sector causes an increase in sorting because low-educated workers performing routine and codifiable tasks are less likely to move to high paying service firms than more skilled workers. These results are not specific to trade-induced labor reallocation, but carry over to any shock or policy which causes a contraction of the manufacturing sector and labor reallocation into the service sector. A back-of-the-envelope calculation suggests that total observed labor reallocation into the non-manufacturing sector explains at least 30% of the rise in sorting and 10% of the rise in wage inequality between 1990 and 2010 in Germany.
Subjects: 
Labor reallocation
wage inequality
sorting
firms
international trade
JEL: 
J31
J62
F14
Document Type: 
Conference Paper

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