The Rise of Class-based Wage Inequality. Results from the German Labor Market
Presidential Department Social Science Research Center Berlin Belrin, Germany
Institute of Sociology University of Vienna Wien, Austria
In many European countries, among them Germany, the distribution of income and wages has become more unequal since the end of the 1990's. In that context the class position turns out to be particularly important for describing the recent growth of inequality. These observations can be linked with economic and sociological explanations. First, based on the idea of a skilled-biased technological change (SBTC), economists would argue that the growth in the demand for non-routine skills led to an increase of the wages of employees with those skills. Accordingly, an increase in class-based wage inequality would reflect qualification differentials that are inherent in the concept of class (i.e. higher classes consist of individuals with non-routine skills). Secondly, in contrast to the SBTC-approach, a sociological, structural theory-based explanation would postulate that substantial parts of the class-based wage differentials are the result of social closure. Hence, the increase in wage inequality is assumed to reflect the fact that incumbents of higher class positions are able to maintain or even expand their wages, whereas incumbents of lower class positions have increasingly to except lowering wages.
In order to specifically examine the class-based rise in wage inequality we use data from the German Socio-Economic-Panel. The empirical analyses are based on models that allow us to investigate changes in the class differentials taking into account heterogeneity between classes due to qualification, i.e. formal education plus occupational skill requirements. Moreover, by using these models we are able to study changes in the wage differentials within classes (i.e. growing wage inequality between occupations). First results show that while both between-class and within-class wage differentials have widened over the last years, these changes can only partly be explained by increasing returns to education and to occupational skills, which is contrary to dominating economic explanations in the literature. Our findings suggest that recent changes in class-based wage inequality have to be explained with a stronger sociological approach, including rent-related components and social closure mechanisms by which individuals in lower class positions are increasingly confronted with shrinking wages.