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The Impact of Macroeconomic Conditions on the Instability and Long-Run Inequality of Workers' Earnings in Canada

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Author Info
Beach, Charles M.
Finnie, Ross
Gray, David

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Abstract

This paper examines the variability of workers' earnings in Canada over the period 1982-1997 and how earnings variability has varied in terms of the unemployment rate and real gross domestic product (GDP) growth over this period. Using a large panel of tax file data, we decompose total variation in earnings across workers and time into a long-run inequality component between workers and an average earnings instability component over time for workers. The analysis is done for men and women and for both long-run participants and a broad coverage of workers. We find an increase in earnings variability between 1982-1989 and 1990-1997 that is largely confined to men and largely driven by widening long-run earnings inequality. Second, the pattern of unemployment rate and GDP growth rate effects on these variance components is not consistent with conventional explanations of cyclical effects on earnings inequality and is suggestive of an alternative paradigm of how economic growth over this period widens long-run earnings inequality. Third, when the unemployment rate and GDP growth rate effects are considered jointly, macroeconomic improvement is found to reduce the overall variability of earnings as the reduction in earnings instability outweighs the general widening of long-run earnings inequality.

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File URL: http://www.statcan.gc.ca/bsolc/olc-cel/olc-cel?catno=11F0019M2006268&lang=eng
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Paper provided by Statistics Canada, Analytical Studies Branch in its series Analytical Studies Branch Research Paper Series with number 2006268e.

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Date of creation: 07 Feb 2006
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Handle: RePEc:stc:stcp3e:2006268e

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Related research
Keywords: Labour; Income; pensions; spending and wealth; Wages; salaries and other earnings; Work transitions and life stages; Low income and inequality;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bartel, Ann P & Lach, Saul & Sicherman, Nachum, 2005. "Outsourcing and Technological Change," CEPR Discussion Papers 5082, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Beach, Charles M. & Finnie, Ross, 2004. "A Longitudinal Analysis of Earnings Change in Canada," Analytical Studies Branch Research Paper Series 2004227e, Statistics Canada, Analytical Studies Branch. [Downloadable!]
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  3. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-75, April. [Downloadable!] (restricted)
  4. Charles M. Beach & Ross Finnie & David Gray, 2003. "Earnings Variability and Earnings Instability of Women and Men in Canada: How Do the 1990s Compare to the 1980s?," Canadian Public Policy, University of Toronto Press, vol. 29(s1), pages 41-64, January. [Downloadable!] (restricted)
  5. R. Moffitt & P. Gottschalk, . "Trends in the covariance structure of earnings in the United States: 1969-1987," Institute for Research on Poverty Discussion Papers 1001-93, University of Wisconsin Institute for Research on Poverty.
  6. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-45, March. [Downloadable!] (restricted)
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  7. Lillard, Lee A & Weiss, Yoram, 1979. "Components of Variation in Panel Earnings Data: American Scientists, 1960-70," Econometrica, Econometric Society, vol. 47(2), pages 437-54, March. [Downloadable!] (restricted)
  8. Osberg, Lars & Sharpe, Andrew, 2002. "An Index of Economic Well-Being for Selected OECD Countries," Review of Income and Wealth, Blackwell Publishing, vol. 48(3), pages 291-316, September. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Charles Beach & Ross Finnie & David Gray, 2006. "Long-Run Inequality and Annual Instability of Men's and Women's Earnings in Canada," Working Papers 1116, Queen's University, Department of Economics. [Downloadable!]
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