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Does low‐pay persist across different regimes? Evidence from German Unification
Author(s) -
Gürtzgen Nicole,
Diegmann né Nolte André
Publication year - 2020
Publication title -
economics of transition and institutional change
Language(s) - English
Resource type - Journals
eISSN - 2577-6983
pISSN - 2577-6975
DOI - 10.1111/ecot.12244
Subject(s) - unification , economics , depreciation (economics) , german , wage , context (archaeology) , human capital , productivity , labour economics , econometrics , macroeconomics , market economy , geography , capital formation , archaeology , financial capital , computer science , programming language
Using German administrative data, we study across‐regime low‐pay persistence in the context of an economic transformation process. We first show that individuals' initial allocation to the post‐unification low‐wage sector was close to random in terms of market‐regime unobservables. Consistent with a weak connection between individuals' true productivity and their pre‐unification low‐wage status, the extent of across‐regime state dependence is found to be small and appears to vanish over time. For males, across‐regime state dependence is most pronounced among the medium‐ and high‐skilled, suggesting the depreciation of human capital as an explanation.