The Transition in East Germany: When is a Ten Point Fall in the Gender Wage Gap Bad News?

Since monetary union with West Germany on 1 July 1990, eastern female monthly wages have risen by 10 percentage points relative to male wages, but female employment has fallen 5 percentage points more than male employment. Using the German Socio-Economic Panel to study the years 1990–94, I show that along with age, the wage of a worker in 1990 is the most important determinant of the hazard rate from employment. Differences in mean 1990 wages explain more than one-half of the gender gap in this hazard rate, since low earners were more likely to leave employment, and were disproportionately female. The withdrawal from employment of low earners can explain 80% of the rise in relative female wages. There is no evidence that reduction in child care availability is a major factor in reducing female employment rates.