Sources of growing labour market inequalities among low-skilled men in Western Germany

Abstract

We use the German Socio-Economic Panel 1984-2008 to identify the sources of this apparent „polarization“ among unskilled men. We start by confirming that earnings inequality among low-skilled men has grown substantially (measured as earnings over a given three-year period in order to minimize effects of short-term fluctuations). Drawing on economic and sociological theories, we then discuss potential explanations for the rise in inequality within the low-skilled group. We gauge their empirical content by estimating counterfactual wage distributions and regressions of (a) the risk of chronic non-employment and (b) the log hourly wage of individuals who are employed at the time of interview.