This section drew attention to the obvious differences between inequality among employed individuals and among the working age population. It could be stated that the Gini coefficient based on employed persons only is lower and not as meaningful as the Gini coefficient among the working age population. The unemployment rate also showed that the Harzt reforms in 2005 had a huge positive impact on inequality among working age populations.
In addition, the great conflict of wage inequality in West and eastern Germany and between man and woman was taken into consideration. It became apparent that the differences since 2011 are no longer as large as expected, and that a pay gap in the upper part of the wage distribution between men and women is discernible, especially in West Germany.
In the next section I will deal with possible explanatory factors for wage inequality.
6. Explanatory Factors for Wage Inequality
Fritzenberger(2012, pp.2-4)describes the development in outline similar to Möller(2016), but much more detailed. Fritzenberger examines various hypotheses from the literature, which can be divided into six essential factors. 1.The Skill-Biased Technological Change, 2. Labor market development through technical progress(Task-based Approach), 3.The development of collective bargaining, 4. The development through labor market reforms, 5. Mobility within the labor market and 6. Firm-specific Pay.
I will now shed light on the aforementioned explanatory factors.
6.1. Skill-Biased Technological Change
This hypothesis assumes that technical progress leads to lay off low-skilled employees that are not longer needed, but at the same time need of hiring more highly skilled workers. This explains the rising wage inequality in the upper sector of wage distribution. So a shift in labor demand happens.
A disadvantage of the thesis, however, is that it cannot explain the inequality in the lower sector of the distribution.(Fitzenberger, 2012, p. 14)
Dustmann et al. (2009) and Antonczyk et al. (2012) compare the development of Germany and the USA. If the thesis of ‘Skill-biased Technological Change’ could explain the full development, then you should be able to identify very similar wage inequality trends in both countries, but this is not the case. In both countries there are strong differences in the lower sector of wage distribution. This means that this hypothesis can only explain a small part of the inequality.( cited by Fitzenberger, 2012, p.14)