The Wage Gap in Manufacturing in Germany: Size and Determinants

Wages in Germany are usually fixed in a two-step process. Firstly, unions and employers' associations negotiate wage agreements at industry level. Secondly, the sectoral wage is modified at establishment level according to the demands of management, works councils and individual employees. Since contract wages are minimum standards, the modifications may only favour the employees. A positive wage gap appears. The paper aims to analyse this second step of wage fixing. Data on the size of the wage gap are presented, determinants of the gap are discussed theoretically and, finally, the hypotheses are tested by regression analysis.