The IMF Working Papers series is designed to make IMF staff research available to a wide audience. With nearly 300 released each year, working papers cover a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper uses micro data from the German Socio-Economic Panel to document that the wage structure in West Germany was remarkably stable during 1984-97, with little variation over time in wage or earnings inequality between and within different skill groups. Empirical evidence suggests that this stability is attributable to institutional factors rather than market forces. The rigidity of relative wages, despite relative shifts in labor demand that favor skilled workers, has resulted in sharp declines in employment rates for unskilled workers. The microeconomic evidence is shown to have important implications for interpreting trends in wage shares, capital-labor ratios, and aggregate unemployment.