Institutions, Technical Change, and Diverging Life Chances: Earnings Mobility in the United States and Germany

Some scholars argue that growing wage inequality stems primarily from technical rather than institutional factors. However, this conclusion assumes that institutional differences operate chiefly at the level of individual industries. This article argues in contrast that important institutional effects are countrywide and demonstrates the effect of country-level institutional differences by comparing recent earnings dynamics in the United States and Germany. The recent trend in real earnings has been steeper in Germany, while the variance in earning mobility has been greater in the United State. This is partly due to higher rates of U.S. job mobility, but cross-national differences in earnings trajectories are evident even for workers who did not change jobs.