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State Dependence and Wage Dynamics: A Heterogeneous Markov Chain Model for Wage Mobility in Austria

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  • Weber, Andrea

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna)

Abstract

The behaviour of individual movements in the wage distribution over time can be described by a Markov process. To investigate wage mobility in terms of transitions between quintiles in the wage distribution we apply a fixed effects panel estimation method suggested by Honorè and Kyriazidou (2000). This method of mobility measurement is robust to data contamination like all methods that treat fractiles. Moreover it allows for the inclusion of exogenous variables that change over time. We apply the estimator to a set of individual data form the Austrian social security records and find that disregarding unobserved heterogeneity greatly underestimates wage mobility. Simulated earnings profiles show that women are less mobile than men and have a tendency to be stuck in the lower part of the wage distribution.

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File URL: http://www.ihs.ac.at/publications/eco/es-114.pdf
File Function: First version, 2002
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Bibliographic Info

Paper provided by Institute for Advanced Studies in its series Economics Series with number 114.

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Length: 23 pages
Date of creation: Apr 2002
Date of revision:
Handle: RePEc:ihs:ihsesp:114

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Related research

Keywords: Wage mobility; Markov process; Fixed effects panel estimation;

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References

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  1. Moshe Buchinsky & Jennifer Hunt, 1996. "Wage Mobility in the United States," NBER Working Papers 5455, National Bureau of Economic Research, Inc.
  2. Frank Cowell & Christian Schluter, 1998. "Income mobility : a robust approach," LSE Research Online Documents on Economics 2210, London School of Economics and Political Science, LSE Library.
  3. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  4. Magnac, Thierry, 2000. "Subsidised Training and Youth Employment: Distinguishing Unobserved Heterogeneity from State Dependence in Labour Market Histories," Economic Journal, Royal Economic Society, vol. 110(466), pages 805-37, October.
  5. 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.
  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. Bo E. Honoré & Ekaterini Kyriazidou, 2000. "Panel Data Discrete Choice Models with Lagged Dependent Variables," Econometrica, Econometric Society, vol. 68(4), pages 839-874, July.
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Citations

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Cited by:
  1. Christoph Pamminger & Regina Tüchler, 2011. "A Bayesian Analysis of Female Wage Dynamics Using Markov Chain Clustering," NRN working papers 2011-04, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  2. Sara Ayllón Gatnau, 2009. "Modelling state dependence and feedback effects between poverty, employment and parental home emancipation among European youth," Economics Working Papers 1180, Department of Economics and Business, Universitat Pompeu Fabra.
  3. Sylvia Frühwirth-Schnatter & Christoph Pamminger & Andrea Weber & Rudolf Winter-Ebmer, 2010. "Labor Market Entry and Earnings Dynamics: Bayesian Inference Using Mixtures-of-Experts Markov Chain Clustering," NRN working papers 2010-14, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  4. Fruhwirth-Schnatter, Sylvia & Fruhwirth, Rudolf, 2007. "Auxiliary mixture sampling with applications to logistic models," Computational Statistics & Data Analysis, Elsevier, vol. 51(7), pages 3509-3528, April.
  5. Martin Biewen, 2009. "Measuring state dependence in individual poverty histories when there is feedback to employment status and household composition," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(7), pages 1095-1116.
  6. Sylvia Frühwirth-Schnatter & Christoph Pamminger, 2009. "Bayesian Clustering of Categorical Time Series Using Finite Mixtures of Markov Chain Models," NRN working papers 2009-07, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.
  7. Martin Biewen, 2004. "Measuring State Dependence in Individual Poverty Status: Are there Feedback Effects to Employment Decisions and Household Composition?," Discussion Papers of DIW Berlin 429, DIW Berlin, German Institute for Economic Research.

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