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Permanent versus transitory wage differentials and the inequality-hours hypothesis

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  • Gustavsson, Magnus

Abstract

This paper disentangles the effect of inequality in permanent and transitory wages on hours worked by, first, estimating the two components for Swedish industries and, second, using the resulting estimates as explanatory variables in an hours-worked equation. Consistent with Bell and Freeman’s (2001) inequality-hours hypothesis, permanent wage differentials are found to have a positive effect on individuals’ hours of work while transitory wage differentials have no effect. However, the analysis also shows that, in estimated hours-worked equations, inequality in observed wages is potentially a good approximation for inequality in permanent wages.

Suggested Citation

  • Gustavsson, Magnus, 2013. "Permanent versus transitory wage differentials and the inequality-hours hypothesis," Economics Letters, Elsevier, vol. 121(3), pages 537-541.
  • Handle: RePEc:eee:ecolet:v:121:y:2013:i:3:p:537-541
    DOI: 10.1016/j.econlet.2013.10.022
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    References listed on IDEAS

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    1. Cameron,A. Colin & Trivedi,Pravin K., 2008. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9787111235767, April.
    2. Anger, Silke, 2008. "Overtime Work as a Signaling Device," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 167-189.
    3. Meghir, Costas & Pistaferri, Luigi, 2011. "Earnings, Consumption and Life Cycle Choices," Handbook of Labor Economics, Elsevier.
    4. Bell, Linda A. & Freeman, Richard B., 2001. "The incentive for working hard: explaining hours worked differences in the US and Germany," Labour Economics, Elsevier, vol. 8(2), pages 181-202, May.
    5. Booth, Alison L. & Francesconi, Marco & Frank, Jeff, 2003. "A sticky floors model of promotion, pay, and gender," European Economic Review, Elsevier, vol. 47(2), pages 295-322, April.
    6. Matz Dahlberg & Magnus Gustavsson, 2008. "Inequality and Crime: Separating the Effects of Permanent and Transitory Income," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(2), pages 129-153, April.
    7. David Campbell & Francis Green, 2002. "The Long Term Pay-Off From Working Longer Hours," Studies in Economics 0205, School of Economics, University of Kent.
    8. George J. Borjas, 1980. "The Relationship between Wages and Weekly Hours of Work: The Role of Division Bias," Journal of Human Resources, University of Wisconsin Press, vol. 15(3), pages 409-423.
    9. Peter Fredriksson & Robert H. Topel, 2010. "Wage Determination and Employment in Sweden Since the Early 1990s: Wage Formation in a New Setting," NBER Chapters,in: Reforming the Welfare State: Recovery and Beyond in Sweden, pages 83-126 National Bureau of Economic Research, Inc.
    10. Stuart S. Rosenthal & William C. Strange, 2008. "Agglomeration and Hours Worked," The Review of Economics and Statistics, MIT Press, vol. 90(1), pages 105-118, February.
    11. Peter Kuhn & Fernando Lozano, 2008. "The Expanding Workweek? Understanding Trends in Long Work Hours among U.S. Men, 1979-2006," Journal of Labor Economics, University of Chicago Press, vol. 26(2), pages 311-343, April.
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    More about this item

    Keywords

    Labor supply; Wage dispersion; Wage dynamics;

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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