Exporters and the Rise in Wage Inequality

Using a linked employer-employee data set of the German manufacturing sector, this paper analyses the role of exporting establishments in explaining rising wage dispersion. Over the period of analysis (1996–2007), the raw wage diff erential between exporters and domestic establishments increased substantially, which can only partly be attributed to corresponding changes in human capital endowments and the returns to them. These fi ndings are consistent with recent heterogeneous-fi rm trade models that feature an exporter wage premium as well as variability of the premium with respect to increasing trade liberalization. A decomposition analysis shows that the increase in the conditional wage gap indeed contributed to rising wage inequality both within and between skill groups. In contrast, the growing employment share of exporters contributed to a reduction in wage dispersion. JEL Classifi cation: F16, J31