Matteo Targa (University of Roma Tre)
Luisa Braunschweig and Johannes Seebauer
This paper examines the evolution of wage inequality in Germany from 1985 to 2020, decomposing wage variance into industry, occupation, firm, and worker components. Building on the seminal work of Abowd et al. (1999) and a recent extension by Lachowska et al. (2023), we estimate time-varying occupation-firm wage premia to track changes in pay dispersion across these dimensions. We find that wage inequality has risen substantially, primarily driven by increasing between-industry dispersion. Within-industry, between-occupation variation has also grown, while within-firm variation remains the dominant component but has declined in relative importance. Sorting has become more pronounced, with high-wage workers becoming more concentrated in high-premium industries and occupations. These findings underline the growing role of industry- and occupation-level wage-setting in shaping overall inequality.