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The role of firms for regional wage inequality and mobility

Since the 1980s wage inequality has been increasing, which is a clearly visible sign for the increasing economic division in society. This is not least due to socio-economic developments at the macro level, such as globalisation and technological change. Recent studies also show that the division into low paying versus high-paying firms has deepened. Furthermore, the selection of high earners into high paying companies has increased. An important question, which has hardly been addressed so far, is therefore to what extent the increasing wage inequality between firms and the increasing segregation of workers has led to an increase in regional disparities (east-west, urban-rural) and whether this contributed to leaving entire regions behind. In addition, previous studies have mostly examined inequality at a certain point in time. This does not consider that people can move up and down in the wage distribution over time. A decrease in promotion opportunities would intensify and cement inequality.

Against this background, this project addresses the following research questions: 1) What is the role of firms for regional wage inequality? 2) To what extend are regional wage disparities driven by selective mobility, especially of high-qualified employees? 3) Has the increase in firm-specific wage differentials lead to selective outward migration from rural and East German areas? 4) Do individual promotion opportunities in the wage distribution differ between regions (East-West, urban-rural)? 5) What is role of mobility between firms with different wage levels for the promotion prospects in the wage distribution?

Thematic Reference to Social Cohesion

Even if structural change, technological progress, and international trade have overall positive effects on economic prosperity, they also generate adjustment costs and produce both winners and losers. First studies show that these processes differently affect regions, that social polarization increases particularly in strongly affected regions, and that this often comes along with increasing vote shares for right-wing populist parties.

The solidification of social milieus and their position in the income distribution is a threat for social cohesion and regional disparities seem to play a non-negligible role in this process. However, we know little about the determinants of regional wage disparities and selective migration between regions. The division of society along spatial and firm characteristics is particularly problematic if mobility between firm types and regions is impeded. Decreasing promotion opportunities might induce people to refuse the existing social and political system, especially if entire regions face a lack of perspectives.

Focussing on firm-specific and regional aspects, this project addresses the relationship between labour market adjustments, inequality and social cohesion, thereby focusing on the socio-economic dimension of social cohesion. It investigates empirically how economic inequality and mobility have changed over the last decades. Various studies suggest that earnings inequality has increased whereas mobility has decreased. These developments are likely a major threat to social cohesion, but their regional dimension has hardly been addressed so far.


Principle investigator: Steffen Müller

Project member: Nils Torben Hollandt



Publications (Selection)

Hirsch, Boris; Müller, Steffen (2020): Firm Wage Premia, Industrial Relations, and Rent Sharing in Germany, in: Industrial and Labor Relations Review, im Erscheinen.

Müller, Steffen; Stegmaier, Jens (2019): Why is there resistance to works councils in Germany? An economic perspective, in: Economic and Industrial Democracy, im Erscheinen.

Müller, Steffen; Neubäumer, Renate (2018): Size of Training Firms and Cumulated Long-run Unemployment Exposure  - The Role of Firms, Luck, and Ability in Young Workers' Careers, in: International Journal of Manpower 39:5, S. 658-673.

Yi, Moises; Müller, Steffen; Stegmaier, Jens (2017): Transferability of Skills across Sectors and Heterogeneous Displacement Costs, in: American Economic Review 107:5, S. 332-336.

Müller, Steffen; Riphahn, Regina; Schwientek, Caroline (2017): Paternal unemployment during childhood: causal effects on youth worklessness and educational attainment, in: Oxford Economic Papers 69:1, S. 213-238.