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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/f/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 Espa�a in its series Banco de Espa�a 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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References

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  1. Primiceri, Giorgio E. & van Rens, Thijs, 2006. "Heterogenous Life-Cycle Profiles, Income Risk and Consumption Inequality," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5881, C.E.P.R. Discussion Papers.
  2. Blau, David M, 1987. "A Time-Series Analysis of Self-employment in the United State," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 95(3), pages 445-67, June.
  3. Martinez-Granado, Maite, 2002. "Self-Employment and Labour Market Transitions: A Multiple State Model," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3661, C.E.P.R. Discussion Papers.
  4. Fatih Guvenen, 2007. "An empirical investigation of labor income processes," IFS Working Papers, Institute for Fiscal Studies W07/13, Institute for Fiscal Studies.
  5. Richard Blundell & Ian Preston, 1997. "Consumption, inequality and income uncertainty," IFS Working Papers, Institute for Fiscal Studies W97/15, Institute for Fiscal Studies.
  6. Simon C. Parker & Yacine Belghitar & Tim Barmby, 2005. "Wage Uncertainty and the Labour Supply of Self-Employed Workers," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 115(502), pages C190-C207, 03.
  7. 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, Boston College Department of Economics 444, Boston College Department of Economics, revised 01 Nov 1998.
  8. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, American Economic Association, vol. 98(5), pages 1887-1921, December.
  9. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
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  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, American Statistical Association, vol. 22, pages 443-456, October.
  12. Jean-Marc Falter, 2007. "Self-employment and earning inequality," Journal of Income Distribution, Journal of Income Distribution, Journal of Income Distribution, vol. 16(2), pages 106-127, June.
  13. 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, University of Chicago Press, vol. 14(4), pages 571-602, October.
  14. Robert A. Moffitt & Peter Gottschalk, 2002. "Trends in the Transitory Variance of Earnings in the United States," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(478), pages C68-C73, March.
  15. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 108(3), pages 604-631, June.
  16. Albarran, P., 2000. "Income Uncertainty and Precautionary Saving: Evidence from Household Rotating Panel Data," Papers, Centro de Estudios Monetarios Y Financieros- 0008, Centro de Estudios Monetarios Y Financieros-.
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Cited by:
  1. Josep Pijoan-Mas & Virginia Sánchez-Marcos, 2009. "Spain Is Different: Falling Trends Of Inequeality," Working Papers, CEMFI wp2009_0910, CEMFI.
  2. Ada Ferrer-i-carbonell & X. Ramos & M. Oviedo, 2013. "GINI Country Report: Growing Inequalities and their Impacts in Spain," GINI Country Reports, AIAS, Amsterdam Institute for Advanced Labour Studies spain, AIAS, Amsterdam Institute for Advanced Labour Studies.
  3. Cristiano Perugini & Gaetano Martino, 2008. "Income Inequality Within European Regions: Determinants And Effects On Growth," Review of Income and Wealth, International Association for Research in Income and Wealth, International Association for Research in Income and Wealth, vol. 54(3), pages 373-406, 09.
  4. repec:iab:iabzaf:v:41:i:2/3:p:119-137 is not listed on IDEAS
  5. Philipp Eisenhauer & Friedhelm Pfeiffer, 2008. "Assessing Intergenerational Earnings Persistence among German Workers," SOEPpapers on Multidisciplinary Panel Data Research 134, DIW Berlin, The German Socio-Economic Panel (SOEP).
  6. Jens Holscher & Cristiano Perugini & Fabrizio Pompei, 2011. "Wage inequality, labour market flexibility and duality in Eastern and Western Europe," Post-Communist Economies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 23(3), pages 271-310.
  7. Åstebro, Thomas & Chen, Jing, 2014. "The entrepreneurial earnings puzzle: Mismeasurement or real?," Journal of Business Venturing, Elsevier, vol. 29(1), pages 88-105.
  8. 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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