WP 18 - Permanent and transitory wage inequality of British men, 1975-2001: Year, age and cohort effects
AbstractWe examine the variance-covariance structure of log-wages over time and over the lifecycle of British men from 1975 to 2001, hereby controlling for cohort effects. Wage inequality has risen sharply during the 1980’s and early 1990’s and remained fairly constant in the second half of the 1990’s. We show that this increase is caused mainly by a strong increase in transitory wage inequality and only to a lesser extent to an increase in permanent wage inequality. The transitory component of log-wages is, however, highly persistent over time: serial correlation decreases from 0.88 over a one-year period to 0.65 over a ten-year period. The constant wage inequality in the second half of the 1990’s is attributed to a slight decrease in permanent wages inequality, a stabilization of the variance of the transitory wage shock, and the strong decrease in transitory wage inequality for the cohorts entering employment since the end of the 1980’s. Ignoring age effects in transitory wage inequality and cohort effects, as is commonly done, leads to severely distorted inferences concerning the changes in permanent wage inequality.
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Bibliographic InfoPaper provided by AIAS, Amsterdam Institute for Advanced Labour Studies in its series AIAS Working Papers with number wp18.
Date of creation: Jan 2003
Date of revision:
Panel Data; Wage Distribution; Inequality; Mobility. JEL codes: C23; D31; J31; J60;
Find related papers by JEL classification:
- Mob - Business Administration and Business Economics; Marketing; Accounting - - - - -
- JEL - Labor and Demographic Economics - - - - -
- cod - - - - - -
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
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