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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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    More about this item

    Keywords

    Labor supply; Wage dispersion; Wage dynamics;
    All these keywords.

    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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