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The evolution of individual male earnings in Great Britain 1974-1994

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  • Richard Dickens
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    Abstract

    In this paper I study the changing dynamic structure of male wages in Great Britain using the New Earnings Survey Panel form 1974-1994. Computing the covariance structure of individual wages by cohort I find evidence of a substantial permanent component of earnings that increases over the life cycle and a highly persistent, serially correlated transitory component. In addition, the estimated variances of both the permanent and transitory components have risen over this period, each explaining about half the rise in inequality. These results imply that the observed cross sectional rise in inequality is reflective of largely permanent differences between individuals that have grown over the last decade or so.

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    File URL: http://eprints.lse.ac.uk/20647/
    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 20647.

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    Length: 55 pages
    Date of creation: Nov 1996
    Date of revision:
    Handle: RePEc:ehl:lserod:20647

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    1. Joseph G. Altonji & Lewis M. Segal, 1994. "Small Sample Bias in GMM Estimation of Covariance Structures," NBER Technical Working Papers 0156, National Bureau of Economic Research, Inc.
    2. Hart, P E, 1976. "The Dynamics of Earnings, 1963-1973," Economic Journal, Royal Economic Society, vol. 86(343), pages 551-65, September.
    3. Moshe Buchinsky & Jennifer Hunt, 1999. "Wage Mobility In The United States," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 351-368, August.
    4. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
    5. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
    6. Machin, Stephen, 1996. "Wage Inequality in the UK," Oxford Review of Economic Policy, Oxford University Press, vol. 12(1), pages 47-64, Spring.
    7. 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.
    8. 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.
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    Cited by:
    1. Alan Manning, 1998. "Movin on up: interpreting the earnings experience profile," LSE Research Online Documents on Economics 20294, London School of Economics and Political Science, LSE Library.

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