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Jobs, workers and changes in earnings dispersion

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  • Simon Burgess
  • Julia Lane
  • David Stevens
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    Abstract

    The ''fractal'' nature of the rise in earnings dispersion is one of its key features and remains a puzzle. In this paper, we offer a new perspective on the causes of changes in earnings dispersion, focusing on the role of labour reallocation. Once we drop the assumption that all firms pay a given worker the same, the allocation of workers to firms matters for the dispersion of earnings. This perspective highlights two new factors that can affect the dispersion of earnings: rates of job and worker reallocation, and the nature of the process allocating workers to jobs. We set out a framework capturing this idea and quantify the impact of reallocation on earnings dispersion, using a dataset that comprises almost the universe of workers and the universe of employers in Maryland. We show that these factors have potentially large effects in general on earnings dispersion. In the case of Maryland over the period 1985-1994, the changing allocation of workers to jobs played a significant role in explaining movements in the dispersion of earnings.

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    File URL: http://eprints.lse.ac.uk/20129/
    File Function: Open access version.
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    Bibliographic Info

    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 20129.

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    Length: 43 pages
    Date of creation: Apr 2001
    Date of revision:
    Handle: RePEc:ehl:lserod:20129

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    Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
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    Web page: http://www.lse.ac.uk/
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    Related research

    Keywords: Earnings inequality; labour reallocation; matched worker and firm panels;

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    References

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    1. Topel, Robert H & Ward, Michael P, 1992. "Job Mobility and the Careers of Young Men," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 439-79, May.
    2. 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, vol. 101(3), pages 410-42, June.
    3. Simon Burgess & Julia Lane & David Stevens, 1996. "Job Flows, Worker Flows and Churning," Labor and Demography 9604004, EconWPA.
    4. Lindbeck, Assar & Snower, Dennis J, 1996. "Reorganization of Firms and Labor-Market Inequality," American Economic Review, American Economic Association, vol. 86(2), pages 315-21, May.
    5. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    6. Lane, Julia & Stevens, David & Burgess, Simon, 1996. "Worker and job flows," Economics Letters, Elsevier, vol. 51(1), pages 109-113, April.
    7. Richard J. Murnane & John B. Willett & Frank Levy, 1995. "The Growing Importance of Cognitive Skills in Wage Determination," NBER Working Papers 5076, National Bureau of Economic Research, Inc.
    8. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    9. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
    10. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation by Skill," NBER Working Papers 5718, National Bureau of Economic Research, Inc.
    11. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
    12. Sattinger, Michael, 1993. "Assignment Models of the Distribution of Earnings," Journal of Economic Literature, American Economic Association, vol. 31(2), pages 831-80, June.
    13. Steven J. Davis & John Haltiwanger, 1995. "Employer Size and The Wage Structure in U.S. Manufacturing," NBER Working Papers 5393, National Bureau of Economic Research, Inc.
    14. Blackburn, McKinley L & Neumark, David, 1993. "Omitted-Ability Bias and the Increase in the Return to Schooling," Journal of Labor Economics, University of Chicago Press, vol. 11(3), pages 521-44, July.
    15. Steve J. Davis & John Haltiwanger, 1991. "Wage Dispersion Between and Within U.S. Manufacturing Plants, 1963-1986," NBER Working Papers 3722, National Bureau of Economic Research, Inc.
    16. Heckman, James J & Honore, Bo E, 1990. "The Empirical Content of the Roy Model," Econometrica, Econometric Society, vol. 58(5), pages 1121-49, September.
    17. Heckman, James J & Sedlacek, Guilherme, 1985. "Heterogeneity, Aggregation, and Market Wage Functions: An Empirical Model of Self-selection in the Labor Market," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1077-1125, December.
    18. Heckman, James J & Sedlacek, Guilherme L, 1990. "Self-selection and the Distribution of Hourly Wages," Journal of Labor Economics, University of Chicago Press, vol. 8(1), pages S329-63, January.
    19. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, issue Nov, pages 2-20.
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