PP 1764/2: Accounting for Selection Effects in the Analysis of Wage Inequality in Germany


The objective of this project is to analyse the rise of wage inequality in Germany over the last decades. For an assessment of the drivers for the observed changes in the wage distribution and the wage differences between labour market groups, it is important to take into account that the selection into paid work may change over time and may differ across groups. In light of employment fluctuations, long-term employment growth, rising female labour force participation, and a shift towards part-time work, composition changes are very important for the analysis of wage inequality. This project quantifies the differences in wage distributions between groups and over time that are free of differences in observed and unobserved worker characteristics. So far, this project has analysed the composition and wage structure effects of observable characteristics, using the reweighting approach by DiNardo et al. (1996) and the RIF regression approach of Firpo et al. (2014). Selection on unobservables has been controlled for using the method of Albrecht et al. (2009) in the analysis of the gender wage gap. There exists only a small but recently very active methodological literature on how to control for selection on unobservables in the analysis of outcome distributions, see Huber and Melly (2015), Arellano and Bon-homme (2016), and D'Hautefoeuille et al. (2017). The project proposal for the second funding period consists of five parts: Part 2A extends work from the first project phase and explores in detail the methodological issues involved in estimating quantile regression for wage data with selection correction. This part aims to make a methodological contribution building on recent developments in the literature and serves as a methodological basis for the empirical analysis. Part 2B estimates quantile regressions with selection correction for a detailed analysis of the evolution of wages over time. We extend the previous work by also analysing as to why the increase in wage inequality in Germany has come to an end in 2010. This part will focus on the suitability of different datasets and the suitability of different instruments to control for selection into paid work based upon unobservables. Part 2C analyses the gender wage gap, while also correcting for selection on unobservables considering a wide range of methodological approaches. Part 2D addresses the question of how the considerable educational expansion has influenced the quality and the returns to educational degrees. We shall study the hypothesis that increasing enrolment in higher education has deteriorated the average quality of graduates and thus reduced the returns to higher education. Part 2E analyses the relationship between changes in individual labour market transitions and the evolution of wages. In particular, we will focus on the effects of increasing incidence of temporary part time work and the notable increase in male part-time work.


Principal Investigators
Fitzenberger, Bernd Prof. Ph.D. (Details) (Econometrics (Faculty of Economics and Business Administration))

Participating external organizations

Duration of Project
Start date: 04/2018
End date: 03/2021

Research Areas
Economic Policy, Applied Economics, Statistics and Econometrics

Last updated on 2021-30-07 at 13:00