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Earnings dynamics, foreign workers and the stability of inequality trends in Luxembourg 1988-2009

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  • SOLOGON Denisa
  • VAN KERM Philippe

Abstract

This paper exploits a large-scale administrative dataset to document trends in male earnings inequality in Luxembourg over twenty years of rapid economic growth. A detailed error components model is estimated to identify persistent and transitory components of log hourly earnings variance. Given the importance of foreign labour in Luxembourg, models and inequality trends are distinguished between native, immigrant and cross-border workers. Surprisingly, we observe only a modest increase in overall hourly earnings inequality between 1988 and 2009. This apparent stability is however the net result of somewhat more complex underlying changes, with marked increases in persistent inequality (except among native workers), growing contribution of foreign workers, divergence across subgroups, and a decrease in earnings instability (primarily for native workers). Overall, we interpret these results as showing a surprising stability in the face of the industrial re-development, the changes in the size and structure of employment, and the fast growth that characterized the country's economy in this period. Such results possibly hint at the role of strict labour market regulations and collective bargaining institutions in holding back earnings inequality, at least in a period of fast economic growth and soaring demand for labour.

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Bibliographic Info

Paper provided by CEPS/INSTEAD in its series CEPS/INSTEAD Working Paper Series with number 2014-03.

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Length: 60 pages
Date of creation: May 2014
Date of revision:
Handle: RePEc:irs:cepswp:2014-03

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Keywords: earnings dynamics; persistent inequality; transitory inequality; cross-border workers; immigrant workers; Luxembourg;

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References

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Cited by:
  1. VAN KERM Philippe & YU Seunghee & CHOE Chung, 2014. "Wage differentials between native, immigrant and cross-border workers: Evidence and model comparisons," CEPS/INSTEAD Working Paper Series 2014-05, CEPS/INSTEAD.

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