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...rs. 14 In fact, if we use for model 1 the two-stage procedure which has been traditionally applied in the literature on wage cyclicality, the standard errors for the aggregate unemployment rate become very large such that the coefficient is statistically insignificant (while still being at -0.85). The difference between the clustered standard errors and the errors arising from a two-stage procedure for model 1 is due to the very low number of clusters (7 years) in this model. 15 This is consistent with the general increase of wage differentials in Germany observed in the last two decades (see Dustmann et al. 2009). 16 For model 1, the parameter estimate on reduction in the unemployment rate is very large (-1.45), but again very badly determined. 13 (regime 4, which prevails in our sample). In this group of plants, wages react differently compared to the regime without bargaining and without a works council, and this holds both for reductions and for increases in unemployment. In order to simplify the interpretation of the complex interactions parameters of (positive or negative) changes in unemployment rates and various industrial relations regimes, Figure 3 provides a simulation of the effects, which ...

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...ume that wages result of a Nash bargain, most models predict that worker might participate in rents generated by wage subsidies. In Germany, the institutional setting should also play a major role in determining wages of subsidized workers: Legislation prescribes that the collectively negotiated or local customary wage level cannot be exceeded when determining the size of the subsidy. While no explicit upper or lower bound is provided by law, subsidies may be refused by caseworkers, if they undercut the collectively negotiated or local customary wage level (see Section 3 for further details). Dustmann et al. (2009) analyzed recent changes in the West German wage structure during the 80s and 90s. The authors argue that the decline in unionization Germany experienced in the 90s is responsible for a rise in lower tail inequality of wages over that period. Nonetheless, during 2007 still around 80 percent of workers in the private sector were employed in firms at least applying collectively negotiated contracts in West Germany, while 62 percent were so employed in East Germany (Kohaut & Ellguth 2008). Unions try to standardize and compress wages between as well as within firms, in particular by attaching wag...

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... that wages result from a Nash bargain, most models predict that workers might participate in rents generated by wage subsidies. In Germany, the institutional setting should also play a major role in determining wages of subsidized workers: Legislation prescribes that the collectively negotiated or local customary wage level cannot be exceeded when determining the size of the subsidy. While no explicit upper or lower bound is provided by law, subsidies may be refused by caseworkers, if they undercut the collectively negotiated or local customary wage level (see Section 3 for further details). Dustmann et al. (2009) analyzed recent changes in the West German wage structure during the 80s and 90s. The authors argue that the decline in unionization Germany experienced in the 90s is responsible for a rise in lower tail inequality of wages over that period. Nonetheless, during 2007 still around 80 percent of workers in the private sector were employed in firms at least applying collectively negotiated contracts in West Germany, while 62 percent were so employed in East Germany (Kohaut & Ellguth 2008). Unions try to standardize and compress wages between as well as within firms, in particular by attaching wag...

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...ame gender, age class, education, Lander). The variable is then standardized to ease the economic interpretation of a continuous variable in the decomposition analysis (Firpo et al., 2007). 10 For a findings overview on happiness and its determinants see, among others, Frey and Stutzer (2002a), Dolan et al. (2008), and Clark et al. (2006), the latter specifically addressing the relationship between happiness and income. 11 Such changes in income inequality in the nineties are consistent with the documented increase in wage inequality in both East and West Germany (Gernandt and Pfeiffer, 2007, Dustmann et al. 2008). 9 interpersonal comparisons (Harsanyi, 1955).12 Second, evaluation of happiness inequality requires the cardinality of self reported life satisfaction. As for as the first issue is concerned, several authors argued that scale heterogeneity does not prevent the use of life satisfaction data in empirical analysis, and a large and growing literature has evolved and conquered space in economic journals. Cantril (1965) finds that individual evaluations on the 0-10 scales are quite comparable. Di Tella and McCulloch (2006) argue that, even in presence of heterogeneity in individual scales, there a...