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Decomposing the Sources of Earnings Inequality: Assessing the Role of Reallocation

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  • Fredrik Andersson
  • Elizabeth E. Davis
  • Matthew L. Freedman
  • Julia I. Lane
  • Brian P. McCall
  • L. Kristin Sandusky

Abstract

This paper uses matched employer-employee data from the U.S. Census Bureau to investigate the contribution of worker and firm reallocation to changes in wage inequality within and across industries between 1992 and 2003. We find that the entry and exit of firms and the sorting of workers and firms based on underlying worker skills are important sources of changes in earnings distributions over time. Our results suggest that the underlying dynamics driving changes in earnings inequality are complex and are due to factors that cannot be measured in standard cross-sectional data.

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File URL: ftp://ftp2.census.gov/ces/wp/2010/CES-WP-10-32.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by Center for Economic Studies, U.S. Census Bureau in its series Working Papers with number 10-32.

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Length: 39 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:cen:wpaper:10-32

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Keywords: Inequality; Decomposition; Human Capital; Reallocation;

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  1. David Card & John E. DiNardo, 2002. "Skill-Biased Technological Change and Rising Wage Inequality: Some Problems and Puzzles," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 20(4), pages 733-783, October.
  2. Abowd, J.M. & Kramarz, F. & Margolis, D.N., 1995. "High-Wage Workers and High-Wage Firms," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9503, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
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  6. John M. Abowd & Paul A. Lengermann & Kevin L. McKinney, 2002. "The Measurement of Human Capital in the U.S. Economy," Longitudinal Employer-Household Dynamics Technical Papers, Center for Economic Studies, U.S. Census Bureau 2002-09, Center for Economic Studies, U.S. Census Bureau, revised Mar 2003.
  7. John Abowd & John Haltiwanger & Julia Lane, 2009. "Wage Structure and Labor Mobility in the United States," NBER Chapters, in: The Structure of Wages: An International Comparison, pages 81-100 National Bureau of Economic Research, Inc.
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  14. Nicole M. Fortin & Thomas Lemieux, 1997. "Institutional Changes and Rising Wage Inequality: Is There a Linkage?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(2), pages 75-96, Spring.
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  19. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(3), pages 410-42, June.
  20. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  21. John Abowd & Francis Kramarz & Sebastien Perez-Duarte & Ian Schmutte, 2009. "A Formal Test of Assortative Matching in the Labor Market," Working Papers, Center for Economic Studies, U.S. Census Bureau 09-40, Center for Economic Studies, U.S. Census Bureau.
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Cited by:
  1. David Card & Jörg Heining & Patrick Kline, 2012. "Workplace Heterogeneity and the Rise of West German Wage Inequality," NBER Working Papers 18522, National Bureau of Economic Research, Inc.

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