Studying wage dynamics has been a key element of labor economics for a long time. One major finding is the widening of the wage distribution in most developed countries that started in the 1970s in several countries. In Germany, rising wage inequality was mainly driven by the disproportional wage increases in the upper-tail of the wage distribution in the 1970s before the lower-tail wage inequality started to increase since the 1990s as well. However, as long as individuals are able to move up the earnings distribution, a high degree of cross-sectional wage inequality is likely to exaggerate the extent of wage inequality over a working life.
Thus, for any analysis of the evolution of lifetime wage inequality it is important to also take individual wage mobility over time into account. Wage mobility is defined as the change of an individual's relative position in the wage distribution between two periods. To this end, I make use of the regional file of the employment subsample of the Research Institute of the German Federal Employment Agency (SIAB data), which contains a 2% random sample of all social security records between 1975 and 2008 that cover approximately 80% of the overall German workforce.
This paper gives a descriptive overview of the evolution of wage inequality and wage mobility separately for men and women in West and East Germany over the last four decades. The results show that the increase in wage inequality was accompanied by a decrease in wage mobility for both sexes in West and East Germany. Women face a higher level of wage inequality and a lower level of wage mobility than men in West and East Germany throughout the entire observation period. The mobility decline was sharper in East Germany so that the level of wage mobility has fallen below that of West Germany. Overall, the impact of wage mobility on reducing wage inequality has become smaller over time.
The long time span of the data additionally allows for an analysis of long-term mobility, which is of particular interest as it gives insights on the chances of moving up the wage distribution over an individual's life cycle. Covering up to 24 years of a West German working life, I find that long-term wage mobility was higher for male than for female workers in all years. However, the wage mobility gender gap has been slowly closing over time as long-term wage mobility has slightly increased for women whereas it slightly decreased for men.