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Earnings Dynamics of Men and Women in Finland: Permanent Inequality versus Earnings Instability

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  • Kässi, Otto

Abstract

I decompose the variance of earnings of Finnish male and female workers to its permanent and transitory components and study their evolution between the years 1998 and 2007. I find that the increasing earnings inequality of men and women is driven by both transitory and permanent components of earnings. In addition, I find considerable differences in earnings dynamics between men and women that have been largely neglected in previous studies of earnings dynamics. The inequality among men is dominated by the permanent component. Conversely, permanent and transitory components are of comparable magnitudes to women. As a corollary, men face more stable income paths but with larger permanent earnings differences. Women, on the other hand, face more instable earnings profiles but have smaller permanent differences in earnings. The correlation between initial earnings inequality and the growth in earnings inequality is found to be positive for both sexes, implying a divergence of earnings profiles towards end of the working career. In addition, earnings instability has risen for both sexes.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34301.

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Date of creation: Oct 2011
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Handle: RePEc:pra:mprapa:34301

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Keywords: Earnings distribution; earnings dynamics; permanent inequality; transitory inequality; variance decomposition;

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