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The Evolution of Individual Male Earnings in Great Britain 1974-1994

In this paper I study the changing dynamic structure of male wages in Great Britain using the New Earnings Survey Panel form 1974-1994. Computing the covariance structure of individual wages by cohort I find evidence of a substantial permanent component of earnings that increases over the life cycle and a highly persistent, serially correlated transitory component. In addition, the estimated variances of both the permanent and transitory components have risen over this period, each explaining about half the rise in inequality. These results imply that the observed cross sectional rise in inequality is reflective of largely permanent differences between individuals that have grown over the last decade or so.

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File URL: http://cep.lse.ac.uk/pubs/download/DP0306.pdf
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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0306.

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Date of creation: Nov 1996
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Handle: RePEc:cep:cepdps:dp0306
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Lorraine Dearden & Steve Machin & Howard Reed, 1995. "Intergenerational mobility in Britain," IFS Working Papers W95/20, Institute for Fiscal Studies.
  2. Stewart, M.B. & Swaffield, J.K., 1997. "Low Pay Dynamics and Transition Probabilities," The Warwick Economics Research Paper Series (TWERPS) 495, University of Warwick, Department of Economics.
  3. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
  4. Gosling, Amanda & Machin, Stephen & Meghir, Costas, 2000. "The Changing Distribution of Male Wages in the U.K," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 635-66, October.
  5. Altonji, Joseph G & Segal, Lewis M, 1996. "Small-Sample Bias in GMM Estimation of Covariance Structures," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 353-66, July.
  6. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-90, October.
  7. David M. Cutler & Lawrence F. Katz, 1992. "Rising Inequality? Changes in the Distribution of Income and Consumption in the 1980s," NBER Working Papers 3964, National Bureau of Economic Research, Inc.
  8. Richard Blundell & Ian Preston, 1998. "Consumption Inequality And Income Uncertainty," The Quarterly Journal of Economics, MIT Press, vol. 113(2), pages 603-640, May.
  9. John M. Abowd & David Card, 1986. "On the Covariance Structure of Earnings and Hours Changes," NBER Working Papers 1832, National Bureau of Economic Research, Inc.
  10. Richard Blundell & Ian Preston, 1995. "Income, expenditure and the living standards of UK households," Fiscal Studies, Institute for Fiscal Studies, vol. 16(3), pages 40-54, August.
  11. John Schmitt, 1995. "The Changing Structure of Male Earnings in Britain, 1974-1988," NBER Chapters, in: Differences and Changes in Wage Structures, pages 177-204 National Bureau of Economic Research, Inc.
  12. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
  13. Machin, Stephen, 1996. "Wage Inequality in the UK," Oxford Review of Economic Policy, Oxford University Press, vol. 12(1), pages 47-64, Spring.
  14. Moshe Buchinsky & Jennifer Hunt, 1999. "Wage Mobility In The United States," The Review of Economics and Statistics, MIT Press, vol. 81(3), pages 351-368, August.
  15. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
  16. Creedy, J & Hart, P E, 1979. "Age and the Distribution of Earnings," Economic Journal, Royal Economic Society, vol. 89(354), pages 280-93, June.
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