Spatial Wage Inequality and Technological Change

During the last decades, wage inequality in Germany has considerably increased both within and across regions. Building on concepts of the task-based approach, this paper studies whether and to what extent these developments are driven by technological change. We present novel evidence that technological change is positively related to intra-regional wage inequality. This is driven by increases in the compensation for non-routine cognitive tasks that are prevalent at upper percentiles of the wage distribution combined with decreases in the compensation for non-routine manual tasks, which are located at lower percentiles. Because there exists substantial variation in the degree of technology exposure across German regions, technological change can also explain part of the rise in inter-regional wage inequality.