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Earnings Instability and Earnings Inequality in Urban China: 1989–2006

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  • Zhao, Zhong

    ()
    (Renmin University of China)

Abstract

This paper investigates the evolution of earnings inequality in urban China from 1989 to 2006. After decomposing the variance of log of earnings into transitory and permanent two parts, we find that both components are important contributors to the total variance of earnings. We also find that the share of the transitory part has been decreasing from early 1990 to 2004; however, this decreasing trend is reversed from 2004 to 2006. Compared female to male, though these two populations share similar trends in the changes of transitory and permanent components, changes are more pronounced for female than for male. Our results suggest that the time-invariant part and time related part in permanent earnings are negatively correlated. This implies converge of earnings profile in long run and also implies that there is more mobility within the distribution of long-term earnings.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3270.

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Length: 25 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:iza:izadps:dp3270

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Keywords: earnings inequality; covariance structure of earnings; China;

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  1. John Whalley & Ximing Yue, 2006. "Rural Income Volatility and Inequality in China," NBER Working Papers, National Bureau of Economic Research, Inc 12779, National Bureau of Economic Research, Inc.
  2. Khor, Niny & Pencavel, John, 2006. "Income Mobility of Individuals in China and the United States," IZA Discussion Papers, Institute for the Study of Labor (IZA) 2003, Institute for the Study of Labor (IZA).
  3. Bound, John & Krueger, Alan B, 1991. "The Extent of Measurement Error in Longitudinal Earnings Data: Do Two Wrongs Make a Right?," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 9(1), pages 1-24, January.
  4. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, Econometric Society, vol. 57(2), pages 411-45, March.
  5. Dwayne Benjamin & Loren Brandt & Jia-Zhueng Fan, 2003. "Ceaseless Toil? Health and Labor Supply of the Elderly in Rural China," Working Papers, University of Toronto, Department of Economics benjamin-03-01, University of Toronto, Department of Economics.
  6. Akee, Randall K. Q., 2007. "Errors in Self-Reported Earnings: The Role of Previous Earnings Volatility," IZA Discussion Papers, Institute for the Study of Labor (IZA) 3263, Institute for the Study of Labor (IZA).
  7. Duncan Thomas & Elizabeth Frankenberg & James P. Smith, 2000. "Lost But Not Forgotten: Attrition and Follow-up in the Indonesian Family Life Survey," Working Papers, RAND Corporation Publications Department 00-03, RAND Corporation Publications Department.
  8. Robert A. Moffitt & Peter Gottschalk, 2002. "Trends in the Transitory Variance of Earnings in the United States," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(478), pages C68-C73, March.
  9. Benjamin, Dwayne & Brandt, Loren & Giles, John, 2005. "The Evolution of Income Inequality in Rural China," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 53(4), pages 769-824, July.
  10. Cappellari, Lorenzo, 2000. "The dynamics and inequality of Italian male earnings: permanent changes or transitory fluctuations?," ISER Working Paper Series 2000-41, Institute for Social and Economic Research.
  11. Peter Gottschalk & Robert Moffitt, 1994. "The Growth of Earnings Instability in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 217-272.
  12. Altonji, Joseph G & Segal, Lewis M, 1996. "Small-Sample Bias in GMM Estimation of Covariance Structures," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 14(3), pages 353-66, July.
  13. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, Elsevier, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  14. Bound, John & Brown, Charles & Mathiowetz, Nancy, 2001. "Measurement error in survey data," Handbook of Econometrics, Elsevier, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 59, pages 3705-3843 Elsevier.
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