- Since Eastern Germany's conversion to a market economy wages have remained considerably below the West German wage level. This article looks at the role of establishment-specific factors-such as sectoral affiliation and size of the labour force-in this process. A non-parametric decomposition that has played a prominent role in the gender wage gap literature is applied to breakdown the East-West wage gap into its constituent components. Using establishment data from German employment statistics, the article demonstrates that the catching-up process of Eastern Germany's wage level is hindered by the shift in its economic structure towards lower-paying types of companies, which has caused the lagging behind in the adjustment of wages
