Organizational Inequalities: First Estimates of Wage Dispersion in German Workplaces

Friday, 3 July 2015: 2:15 PM-3:45 PM
TW2.3.03 (Tower Two)
Donald Tomaskovic-Devey, University of Massachusetts, Amherst, MA; University of Massachusetts
Peter Jacobebbinghaus, Bielefeld University and IAB, Bielefeld, Germany
Using linked employer-employee data for all German private sector workplaces from 2000-2013 we explore candidate generic social mechanisms that may produce variation in organizational income inequalities. Relational inequality theory (RIT) is a sociological model of workplace wage bargaining that puts social and technical relations within workplaces at the heart of the process that leads to organizational inequalities. RIT adopts the focus on divisions of labor, status segregation, and relative power among actors from new structuralism, but like the labor process literatures locates the proximate inequality generating mechanisms inside workplaces themselves, rather than in occupational structures or external labor markets (Avent-Holt and Tomaskovic-Devey 2014).

This paper will first establish basic descriptive information on levels, trajectories, and variance in workplace inequalities for Germany. We will then go on to develop models to explain this variation. The most obvious source of workplace inequality lies in the technical division of labor (Blau 1977; Hedström 1991). We will begin with simple models that regress workplace inequality on the degree of occupational heterogeneity and skill variability at the workplace level. This approach is closely tied to the literature that explains rising inequality in terms of the shifts in the skill composition of production. Comparative work using industry-occupation, rather than LEEP, data supports the hypothesis that the hollowing-out of the skill distribution is associated with rising inequality in Germany. Most of the few studies that have looked at workplace earnings inequalities in the past have found that employee gender and human capital heterogeneity are associated with higher earnings inequalities (Barth et al. 2012; Hedström 1991; Kalleberg and van Buren 1994; Shin 2009). A core insight of relational inequality theory is that the level of inequality in production is generated at the intersection of workplace roles and other legitimating categorical distinctions. We will explore the impact of workplace heterogeneity on the basis of occupation, education, sex, ethnicity, citizenship, and tenure, as well as the degree of workplace occupational segregation along education, sex, ethnicity, citizenship, and tenure lines upon workplace inequality levels. Thus inequality is predicted to vary as a function of technical distinctions in production and their intersections with other categorical distinctions (Avent-Holt and Tomaskovic-Devey 2014.

In an application of RIT to LEEP data, Tomaskovic-Devey, Hällsten and Avent-Holt (2015) show that non-western immigrant-native Swede wage gaps vary dramatically across workplaces. Wage gaps are larger in high inequality workplaces, among white collar workers, and when immigrants are occupationally segregated from native workers. A notable aspect of this paper is that workplaces with higher levels of inequality consistently increase the inequality associated with all individual status characteristics. Wage returns to education, occupational skill, and even individual fixed effects all rise with the level of workplace inequality. Observing German workplaces Antonczyk, Bernd and Sommerfeld (2010) show a similar link between workplace inequality and gender pay gaps. In France, where the rising inequalities have been at the very top of the wage distribution, Jellal, Nordman, and Wolff (2008) show that workplace gender wage gaps rise at the top as well.

 Investigating the rise in male earnings inequality in West Germany, Card, Heining, and Kline (2014) find that increased between workplace wage inequality accounted for about a quarter of growing wage inequality. In contrast to the US or Swedish patterns, Germany seems to have had a larger increase in within workplace inequality. The rise in the within workplace wage dispersion was associated with increased educational dispersion and occupational composition. None of the rise in inequality was associated with increased returns to individual education, rather it is the skill level of the workplace that produced the increased returns to more educated workers. In addition, workplaces may have simplified their divisions of labor yielding increasing proportions of high skill and low skill workplaces. Both of these patterns are associated with the birth of new, non-union low wage workplaces.  New firms born after 1996 show particularly high levels of between firm wage dispersion. Antonczyk, Fitzenberger, and Sommerfeld (2010) show that rising within workplace level inequality is responsible for the stagnant German gender wage gap, despite women’s increased human capital relative to men.

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