New Publication by Veronika Lukesch und Thomas Zwick

Lukesch and Thomas Zwick entitled "Outside Options Drive Wage Inequalities in Continuing Jobs: Evidence From a Natural Experiment" has just been published. It shows that German firms respond with wage increases to improved wage options of their employees in the labor market. This flexibility leads to wage inequalities even within comparable groups of employees in a firm when their wage options drift apart in the labor market. In particular, establishments with strong general wage increases differentiate the wages of their employees, even if they have a collective wage agreement or a works council.

The discussion paper can be found here:: http://ftp.zew.de/pub/zew-docs/dp/dp21003.pdf