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Earnings Dynamics and Inequality among Canadian Men, 1976-1992: Evidence from Longitudinal Income Tax Records

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  • Michael Baker
  • Gary Solon

Abstract

Several recent studies have found that earnings inequality in Canada has grown considerably since the late 1970's. Using an extraordinary data base drawn from longitudinal income tax records, we decompose this growth in earnings inequality into its persistent and transitory components. We find that the growth in earnings inequality reflects both an increase in long-run inequality and an increase in earnings instability. The large size of our earnings panel allows us to estimate and test richer models of earnings dynamics than could be supported by the relatively small panel surveys used in U.S. research. The Canadian data strongly reject several restrictions commonly imposed in the U.S. literature, and they also suggest that imposing these evidently false restrictions may lead to distorted inferences about earnings dynamics and inequality trends.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7370.

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Date of creation: Sep 1999
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Handle: RePEc:nbr:nberwo:7370

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