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Earnings Dynamics and Inequality among Men in Luxembourg, 1988-2004: Evidence from Administrative Data

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  • Sologon, Denisa Maria

    ()
    (CEPS/INSTEAD)

  • O'Donoghue, Cathal

    ()
    (Teagasc Rural Economy Research Centre)

Abstract

Starting with the late 1980s and intensifying after early 1990s, Luxembourg evolved from an industrial economy to an economy dominated by the tertiary sector, which relies heavily on the cross-border workforce. This paper explored the implications of these labour market structural changes for the structure of earnings inequality and earnings mobility. Using an extraordinary longitudinal dataset drawn from administrative records on professional career, we decomposed Luxembourg’s growth in earnings inequality into persistent and transitory components and explored the extent to which changes in cross-sectional earnings inequality between 1988 and 2004 reflect changes in the transitory or permanent components of earnings. Thanks to the richness of the Luxembourgish data set, we are able to estimate a much richer model that nests the various specifications used in the US, Canadian and European literature up to date, thus rejecting several restrictions commonly imposed in the literature. We find that the growth in earnings inequality reflects an increase in long-term inequality and a decrease in earnings instability, and is accompanied by a decrease in earnings mobility. Thus in 2004 compared with 1988, low wage men in Luxembourg are worst off both in terms of their relative wage and in terms of their opportunity of improving their relative income position in a lifetime perspective.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5014.

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Length: 80 pages
Date of creation: Jun 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5014

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Keywords: panel data; wage distribution; inequality; mobility;

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References

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  1. Gustavsson, Magnus, 2004. "Trends in the Transitory Variance of Earnings: Evidence from Sweden 1960-1990 and a Comparison with the United States," Working Paper Series, Uppsala University, Department of Economics 2004:11, Uppsala University, Department of Economics.
  2. Denisa Maria Sologon & Cathal O'Donoghue, 2009. "Earnings Dynamics and Inequality in EU, 1994-2001," SOEPpapers on Multidisciplinary Panel Data Research 184, DIW Berlin, The German Socio-Economic Panel (SOEP).
  3. 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.
  4. Sologon, Denisa Maria & O'Donoghue, Cathal, 2009. "Equalizing or Disequalizing Lifetime Earnings Differentials? Earnings Mobility in the EU: 1994-2001," IZA Discussion Papers 4642, Institute for the Study of Labor (IZA).
  5. Xavier Ramos, 2003. "The Covariance Structure of Earnings in Great Britain, 1991-1999," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 70(278), pages 353-374, 05.
  6. Milton Friedman & Simon Kuznets, 1954. "Income from Independent Professional Practice," NBER Books, National Bureau of Economic Research, Inc, National Bureau of Economic Research, Inc, number frie54-1.
  7. Denisa Maria Sologon & Cathal O'Donoghue, 2009. "Increased Opportunity to Move up the Economic Ladder?: Earnings Mobility in EU: 1994-2001," SOEPpapers on Multidisciplinary Panel Data Research 221, DIW Berlin, The German Socio-Economic Panel (SOEP).
  8. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 15(2), pages 338-75, April.
  9. Michael Baker & Gary Solon, 1998. "Earnings Dynamics and Inequality among Canadian Men, 1976-1992: Evidence from Longitudinal Income Tax Records," Working Papers, University of Toronto, Department of Economics baker-98-01, University of Toronto, Department of Economics.
  10. Sologon, Denisa Maria & O'Donoghue, Cathal, 2009. "Policy, Institutional Factors and Earnings Mobility," IZA Discussion Papers 4151, Institute for the Study of Labor (IZA).
  11. Sologon, Denisa Maria & O'Donoghue, Cathal, 2009. "Earnings Dynamics and Inequality among Men across 14 EU Countries, 1994-2001: Evidence from ECHP," IZA Discussion Papers 4012, Institute for the Study of Labor (IZA).
  12. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, Elsevier, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
  13. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, Elsevier, vol. 18(1), pages 83-114, January.
  14. repec:ese:iserwp:99-11 is not listed on IDEAS
  15. R. Alessie & A.S. Kalwij, 2003. "Permanent and transitory wage inequality of British men, 1975-2001: year, age and cohort effects," Working Papers, Utrecht School of Economics 03-04, Utrecht School of Economics.
  16. Dickens, Richard, 2000. "Caught in a Trap? Wage Mobility in Great Britain: 1975-1994," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 67(268), pages 477-97, November.
  17. SOLOGON Denisa & O?DONOGHUE Cathal, 2010. "Earnings dynamics and inequality in the EU, 1994-2001," CEPS/INSTEAD Working Paper Series 2010-34, CEPS/INSTEAD.
  18. Dickens, Richard, 2000. "The Evolution of Individual Male Earnings in Great Britain: 1975-95," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(460), pages 27-49, January.
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Cited by:
  1. 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).

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