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Inequality for Wage Earners and Self-Employed: Evidence from Panel Data

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  • Pedro Albarrán

    () (Universidad Carlos III de Madrid)

  • Raquel Carrasco

    () (Banco de España)

  • Maite Martínez-Granado

    () (Euskal Herriko Unibertsitatea)

Abstract

In this paper we study the evolution of income inequality for employees and self-employed workers. We highlight the importance of separately analyzing these different sources of income to gain a broader understanding of inequality. Using Spanish panel data on income and consumption from the ECPF for the period 1987-96, we decompose the variance of income shocks into a permanent and a transitory component. We find that there are noticeable differences in the evolution of income inequality, as well as in the relative importance of the permanent and transitory components across these groups. Our results point that the evolution of inequality can be basically explained by movements in the variance of the transitory component of income for the self-employed, while for the employees it is mainly driven by the variance of the permanent component, specially at the end of the period. Given these disparities, it seems that these two sources of income should be studied separately and that different policies are suitable for each group.

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File URL: http://www.bde.es/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/07/Fic/dt0734e.pdf
File Function: First version, October 2007
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Bibliographic Info

Paper provided by Banco de España in its series Banco de España Working Papers with number 0734.

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Length: 48 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:bde:wpaper:0734

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Keywords: Permanent income inequality; transitory income inequality; consumption; selfemployment; panel data;

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  1. Martin Browning & Annamaria Lusardi, 1995. "Household Saving: Micro Theories and Micro Facts," Department of Economics Working Papers 1995-02, McMaster University.
  2. Richard Blundell & Ian Preston, 1998. "Consumption Inequality And Income Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 603-640, May.
  3. Martinez-Granado, Maite, 2002. "Self-Employment and Labour Market Transitions: A Multiple State Model," CEPR Discussion Papers 3661, C.E.P.R. Discussion Papers.
  4. Giorgio E. Primiceri & Thijs van Rens, 2006. "Heterogeneous life-cycle profiles, income risk and consumption inequality," Economics Working Papers 945, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2008.
  5. Fatih Guvenen, 2007. "An Empirical Investigation of Labor Income Processes," NBER Working Papers 13394, National Bureau of Economic Research, Inc.
  6. Robert A. Moffitt & Peter Gottschalk, 1995. "Trends in the Variances of Permanent and Transitory Earnings in the U.S. and Their Relation to Earnings Mobility," Boston College Working Papers in Economics 444, Boston College Department of Economics, revised 01 Nov 1998.
  7. Blau, David M, 1987. "A Time-Series Analysis of Self-employment in the United State," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 445-67, June.
  8. Carrington, William J & McCue, Kristin & Pierce, Brooks, 1996. "The Role of Employer-Employee Interactions in Labor Market Cycles: Evidence from the Self-Employed," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 571-602, October.
  9. Robert A. Moffitt & Peter Gottschalk, 2002. "Trends in the Transitory Variance of Earnings in the United States," Economic Journal, Royal Economic Society, vol. 112(478), pages C68-C73, March.
  10. Simon Parker & Tim Barmby & Yacine Belghitar, 2004. "Wage Uncertainty And The Labour Supply Of Self-Employed Workers," Royal Economic Society Annual Conference 2004 67, Royal Economic Society.
  11. Javier Alvarez, 2004. "Dynamics and Seasonality in Quarterly Panel Data: An Analysis of Earnings Mobility in Spain," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 443-456, October.
  12. Richard Blundell & Luigi Pistaferri & Ian Preston, 2004. "Consumption inequality and partial insurance," IFS Working Papers W04/28, Institute for Fiscal Studies.
  13. Albarran, P., 2000. "Income Uncertainty and Precautionary Saving: Evidence from Household Rotating Panel Data," Papers 0008, Centro de Estudios Monetarios Y Financieros-.
  14. repec:dur:durham:179 is not listed on IDEAS
  15. McClements, L. D., 1977. "Equivalence scales for children," Journal of Public Economics, Elsevier, vol. 8(2), pages 191-210, October.
  16. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
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Cited by:
  1. Josep Pijoan-Mas & Virginia Sánchez-Marcos, 2009. "Spain Is Different: Falling Trends Of Inequeality," Working Papers wp2009_0910, CEMFI.
  2. Gaetano Martino & Cristiano Perugini, 2008. "Income inequality within European regions: determinants and effects on growth," Quaderni del Dipartimento di Economia, Finanza e Statistica 52/2008, Università di Perugia, Dipartimento Economia, Finanza e Statistica.
  3. Eisenhauer, Philipp & Pfeiffer, Friedhelm, 2008. "Assessing intergenerational earnings persistence among German workers," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 41(2/3), pages 119-137.

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