This paper challenges the view that the German wage structure remained stable throughout the 1980s and 1990s. Using a 2% sample of social security records, it shows that wage inequality increased in the 1980s, but only at the top of the distribution. In the early 1990s, wage inequality started to rise also at the bottom of the distribution. While the US and Germany experienced similar changes at the top of the distribution throughout the 1980s and 1990s, the patterns at the bottom of the distribution are reversed. The paper argues that changes in education and age structure can explain a substantial part of the increase in inequality, particularly at the top of the distribution. It also shows that selection into unemployment cannot account for the stable wage structure at the bottom in the 1980s. In contrast, about one-third of the increase in lower tail inequality in the 1990s can be related to de-unionization. Fluctuations in relative supply play an important role in explaining trends in the skill premium. These findings are consistent with the view that technological change is responsible for the widening of the wage distribution at the top. The widening of the wage distribution at the bottom, however, may be better explained by episodic events, such as changes in labor market institutions and supply shocks. The paper uses a new decomposition technique to analyze whether changes in inequality are explained by mechanical changes in the workforce composition or reflect changes in skill prices. It finds that changes in workforce composition are important, particularly at the upper end of the wage distribution. However, these changes cannot fully account for the divergent path of upper and lower tail inequality in the 1980s, or for the divergent path of lower tail inequality in the 1980s and 1990s. The paper also investigates whether the rising unemployment and the corresponding selection into work can explain why lower tail inequality did not increase in the 1980s, although upper tail inequality did. It finds that selection into unemployment is not responsible for why lower tail inequality did not increase in the 1980s. The paper further evaluates whether the decline in unionization in Germany in the 1990s is responsible for the rise in lower tail inequality over that period. It finds that between 1995 and 2004, de-unionization can account for one-third of the rise in inequality at the lower end of the wage distribution. The paper provides evidence consistent with a polarization of work, showing that occupations with high median wages in 1979 experienced the largest growth rate, while occupations in the middle of the 1979 wage distribution lost ground relative to occupations at the bottom. Moreover, occupations at the high end of the 1979 wage distribution predominantly use non-rThis paper challenges the view that the German wage structure remained stable throughout the 1980s and 1990s. Using a 2% sample of social security records, it shows that wage inequality increased in the 1980s, but only at the top of the distribution. In the early 1990s, wage inequality started to rise also at the bottom of the distribution. While the US and Germany experienced similar changes at the top of the distribution throughout the 1980s and 1990s, the patterns at the bottom of the distribution are reversed. The paper argues that changes in education and age structure can explain a substantial part of the increase in inequality, particularly at the top of the distribution. It also shows that selection into unemployment cannot account for the stable wage structure at the bottom in the 1980s. In contrast, about one-third of the increase in lower tail inequality in the 1990s can be related to de-unionization. Fluctuations in relative supply play an important role in explaining trends in the skill premium. These findings are consistent with the view that technological change is responsible for the widening of the wage distribution at the top. The widening of the wage distribution at the bottom, however, may be better explained by episodic events, such as changes in labor market institutions and supply shocks. The paper uses a new decomposition technique to analyze whether changes in inequality are explained by mechanical changes in the workforce composition or reflect changes in skill prices. It finds that changes in workforce composition are important, particularly at the upper end of the wage distribution. However, these changes cannot fully account for the divergent path of upper and lower tail inequality in the 1980s, or for the divergent path of lower tail inequality in the 1980s and 1990s. The paper also investigates whether the rising unemployment and the corresponding selection into work can explain why lower tail inequality did not increase in the 1980s, although upper tail inequality did. It finds that selection into unemployment is not responsible for why lower tail inequality did not increase in the 1980s. The paper further evaluates whether the decline in unionization in Germany in the 1990s is responsible for the rise in lower tail inequality over that period. It finds that between 1995 and 2004, de-unionization can account for one-third of the rise in inequality at the lower end of the wage distribution. The paper provides evidence consistent with a polarization of work, showing that occupations with high median wages in 1979 experienced the largest growth rate, while occupations in the middle of the 1979 wage distribution lost ground relative to occupations at the bottom. Moreover, occupations at the high end of the 1979 wage distribution predominantly use non-r