The Myth of Equal Opportunity in Germany? Wage Inequality and the Role of (Non-)academic Family Background for Differences in Capital Endowments and Returns on the Labour Market

Abstract

While providing equal opportunities to all members of society independent of an individual’s socio-economic background is a major objective of German policy makers, educational opportunities of children with a non-academic family background are still unequally obstructed. When analysing the labour market implications of this disadvantage, social capital as an additional source of inequality often lacks attention. Drawing on the instrumental value of rather loose contacts (i.e. weak ties) on the labour market as revealed by Granovetter (Getting a job. A study of contacts and careers, The University of Chicago Press, Cambridge, 1974), this paper goes beyond the human capital approach and includes a measure of instrumental social capital in the form of weak-tie career support in the earnings function. Applying an Oaxaca-Blinder decomposition and quantile regressions, we find a significant average wage gap between those with and without an academic family background. A large part can be explained by deficits that those from less educated families incur with respect to human and instrumental social capital: Lower educational attainment accounts for more than half of the wage gap between the two groups while fewer career support explains around five percent of the differential. Additionally, a non-academic family background is associated with a significant deficit in returns to their instrumental social capital along the wage distribution. The findings therefore suggest that inequalities of opportunity on the German labour market occur beyond the education system, as not only the quantity but also the quality of career supporting networks of those from a non-academic family are inferior.