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Assessing the equalizing force of mobility using short panels: France 1990-2000

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  • Stéphane Bonhomme
  • Jean-Marc Robin

    ()
    (Institute for Fiscal Studies and EUREQua, University of Paris 1)

Abstract

In this paper, we document whether and how much the equalizing force of earnings mobility has changed in France in the 1990s. For this purpose, we use a representative three-year panel,the French Labour Force Survey. We develop a model of earnings dynamics that combines a flexible specification of marginal earnings distributions (to fit the large cross-sectional dimension of the data) with a tight parametric representation of the dynamics (adapted to the short timeseries dimension). Log earnings are modelled as the sum of a deterministic component, an individual fixed effect, and a transitory component which is assumed first-order Markov. The transition probability of the transitory component is modelled as a one-parameter Plackett copula. We estimate this model using a sequential EM algorithm. We exploit the estimated model to study employment/earnings inequality in France over the 1990-2002 period. We show that, in phase with business cycle fluctuations (a recession in 1993 and two peaks in 1990 and 2000), earnings mobility decreases when cross-section inequality and unemployment risk increase. We simulate individual earnings trajectories and compute present values of lifetime earnings over various horizons. Inequality presents a hump-shaped evolution over the period, with a 9% increase between 1990 and 1995 and a decrease afterwards.Accounting for unemployment yields an increase of 11%. Moreover, this increase is persistent, as it translates into a 12% increase in the variance of log present values. The ratio of inequality in present values to inequality in one-year earnings, a natural measure of immobility or of the persistence of inequality, remains remarkably constant over the business cycle.

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Bibliographic Info

Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP02/08.

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Date of creation: Feb 2008
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Handle: RePEc:ifs:cemmap:02/08

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  1. Martin Browning & Mette Ejrn�s & Javier Alvarez, 2010. "Modelling Income Processes with Lots of Heterogeneity," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1353-1381.
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Cited by:
  1. Jeremy Lise & Costas Meghir & Jean-Marc Robin, 2013. "Mismatch, sorting and wage dynamics," IFS Working Papers W13/16, Institute for Fiscal Studies.
  2. Jean-Marc Robin & Costas Meghir & Jeremy Lise, 2009. "Matching, Sorting and Wages," 2009 Meeting Papers 180, Society for Economic Dynamics.
  3. Robert Gary-Bobo & Marion Gousse & Jean-Marc Robin, 2014. "Grade retention and unobserved heterogeneity," CeMMAP working papers CWP14/14, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  4. Doris, Aedin & O'Neill, Donal & Sweetman, Olive, 2010. "Identification of the Covariance Structure of Earnings Using the GMM Estimator," IZA Discussion Papers 4952, Institute for the Study of Labor (IZA).
  5. Thierry Magnac & Sebastien Roux & Nicolas Pistolesi, 2013. "Post schooling human capital investments and the life cycle variance of earnings," 2013 Meeting Papers 426, Society for Economic Dynamics.
  6. repec:spo:wpecon:info:hdl:2441/6ggbvnr6munghes9od0s108ro is not listed on IDEAS
  7. Emma Tominey, 2010. "The Timing of Parental Income and Child Outcomes: The Role of Permanent and Transitory Shocks," CEE Discussion Papers 0120, Centre for the Economics of Education, LSE.
  8. Dickson, Matt & Postel-Vinay, Fabien & Turon, Hélène, 2014. "The Lifetime Earnings Premium in the Public Sector: The View from Europe," IZA Discussion Papers 8159, Institute for the Study of Labor (IZA).

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