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Jobs, Workers and Changes in Earnings Dispersion

  • Simon Burgess
  • Julia Lane
  • David Stevens

The 'fractal' nature of the rise in earnings dispersion is one of its key features and remains a puzzle. In this paper, we offer a new perspective on the causes of changes in earnings dispersion, focusing on the role of labour reallocation. Once we drop the assumption that all firms pay a given worker the same, the allocation of workers to firms matters for the dispersion of earnings. This perspective highlights two new factors that can affect the dispersion of earnings: rates of job and worker reallocation, and the nature of the process allocating workers to jobs. We set out a framework capturing this idea and quantify the impact of reallocation on earnings dispersion, using a dataset that comprises almost the universe of workers and the universe of employers in Maryland. We show that these factors have potentially large effects in general on earnings dispersion. In the case of Maryland over the period 1985-1994, the changing allocation of workers to jobs played a significant role in explaining movements in the dispersion of earnings.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0491.

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Date of creation: Apr 2001
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Handle: RePEc:cep:cepdps:dp0491
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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