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Decomposing the Sources of Earnings Inequality Assessing the Role of Reallocation

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Author Info
Fredrik Andersson
Elizabeth E. Davis
Matthew L. Freedman
Julia I. Lane
Brian P. McCall ()
L. Kristin Sandusky

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Abstract

This paper uses matched employer-employee data from the Longitudinal Employer Household Dynamics database to investigate the contribution of worker and firm reallocation to within industry changes in wage inequality 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 determinants of changes in industry earnings distributions over time. Our results suggest that the underlying dynamics of earnings inequality are complex and are due to factors that cannot be measured in standard crosssectional data.

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Paper provided by Industrial Relations Center, University of Minnesota (Twin Cities Campus) in its series Working Papers with number 0106.

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Handle: RePEc:hrr:papers:0106

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  3. Barry T. Hirsch & Edward J. Schumacher, 2004. "Match Bias in Wage Gap Estimates Due to Earnings Imputation," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 689-722, July. [Downloadable!]
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  4. Fortin, Nicole M & Lemieux, Thomas, 1997. "Institutional Changes and Rising Wage Inequality: Is There a Linkage?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 75-96, Spring. [Downloadable!] (restricted)
  5. Andrew B. Bernard & J. Bradford Jensen, 1998. "Understanding Increasing and Decreasing Wage Inequality," NBER Working Papers 6571, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier. [Downloadable!] (restricted)
  7. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Blackwell Publishing, vol. 62(1), pages 53-82, January. [Downloadable!] (restricted)
  8. Haltiwanger, John C. & Lane, Julia I. & Spletzer, James R., 2007. "Wages, productivity, and the dynamic interaction of businesses and workers," Labour Economics, Elsevier, vol. 14(3), pages 575-602, June. [Downloadable!] (restricted)
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  9. Marco Manacorda, 2004. "Can the Scala Mobile Explain the Fall and Rise of Earnings Inequality in Italy? A Semiparametric Analysis, 19771993," Journal of Labor Economics, University of Chicago Press, vol. 22(3), pages 585-614, July. [Downloadable!]
  10. Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May. [Downloadable!] (restricted)
  11. 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.
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  12. 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, vol. 20(4), pages 733-783, October. [Downloadable!]
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  13. 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. [Downloadable!] (restricted)
  14. Lucia Foster & John Haltiwanger & Chad Syverson, 2005. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," IZA Discussion Papers 1705, Institute for the Study of Labor (IZA). [Downloadable!]
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