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Inequality for wage earners and self-employed : evidence from panel data

Author Info

  • Albarrán, Pedro
  • Carrasco, Raquel
  • Martínez-Granado, Maite

Abstract

In this paper we study the evolution of income inequality for employees and self-employed workers. We highlight the importance of separately analyzing these different sources of income to gain a broader understanding of inequality. Using Spanish panel data on income and consumption from the ECPF for the period 1987-96, we decompose income shocks into a permanent and a transitory component. We find that there are noticeable differences in the evolution of income inequality, as well as in the relative importance of the permanent and transitory components across these groups. Our results point that the evolution of inequality can be basically explained by movements in the transitory component of income for the self-employed, while for the employees it is mainly driven by the permanent component, specially at the end of the period. Given these disparities, it seems that these two sources of income should be studied separately and that different policies are suitable for each group.

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File URL: http://e-archivo.uc3m.es/bitstream/handle/10016/688/we072414.pdf?sequence=1
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Paper provided by Universidad Carlos III de Madrid. Departamento de Economía in its series UC3M Working papers. Economics with number we072414.

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Date of creation: Mar 2007
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Handle: RePEc:cte:werepe:we072414
Contact details of provider: Web page: http://www.eco.uc3m.es/

Keywords: Panel data;

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Find related papers by JEL classification:
  • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
  • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
  • D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
  • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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  1. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June.
  2. Fatih Guvenen, 2005. "An Empirical Investigation of Labor Income Processes," Macroeconomics 0508026, EconWPA.
  3. Javier Alvarez, 2004. "Dynamics and Seasonality in Quarterly Panel Data: An Analysis of Earnings Mobility in Spain," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 443-456, October.
  4. Martinez-Granado, Maite, 2002. "Self-Employment and Labour Market Transitions: A Multiple State Model," CEPR Discussion Papers 3661, C.E.P.R. Discussion Papers.
  5. Albarran, P., 2000. "Income Uncertainty and Precautionary Saving: Evidence from Household Rotating Panel Data," Papers 0008, Centro de Estudios Monetarios Y Financieros-.
  6. Richard Blundell & Ian Preston, 1998. "Consumption Inequality and Income Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 113(2), pages 603-640.
  7. Richard Blundell & Luigi Pistaferri & Ian Preston, 2004. "Consumption inequality and partial insurance," IFS Working Papers W04/28, Institute for Fiscal Studies.
  8. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Discussion Papers 96-01, University of Copenhagen. Department of Economics.
  9. Jean-Marc Falter, 2007. "Self-employment and earning inequality," Journal of Income Distribution, Journal of Income Distribution, vol. 16(2), pages 106-127, June.
  10. Simon Parker & Tim Barmby & Yacine Belghitar, 2004. "Wage Uncertainty And The Labour Supply Of Self-Employed Workers," Royal Economic Society Annual Conference 2004 67, Royal Economic Society.
  11. Robert A. Moffitt & Peter Gottschalk, 1995. "Trends in the Variances of Permanent and Transitory Earnings in the U.S. and Their Relation to Earnings Mobility," Boston College Working Papers in Economics 444, Boston College Department of Economics, revised 01 Nov 1998.
  12. Blau, David M, 1987. "A Time-Series Analysis of Self-employment in the United State," Journal of Political Economy, University of Chicago Press, vol. 95(3), pages 445-67, June.
  13. Giorgio E. Primiceri & Thijs van Rens, 2006. "Heterogeneous life-cycle profiles, income risk and consumption inequality," Economics Working Papers 945, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2008.
  14. Robert A. Moffitt & Peter Gottschalk, 2002. "Trends in the Transitory Variance of Earnings in the United States," Economic Journal, Royal Economic Society, vol. 112(478), pages C68-C73, March.
  15. Carrington, William J & McCue, Kristin & Pierce, Brooks, 1996. "The Role of Employer-Employee Interactions in Labor Market Cycles: Evidence from the Self-Employed," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 571-602, October.
  16. McClements, L. D., 1977. "Equivalence scales for children," Journal of Public Economics, Elsevier, vol. 8(2), pages 191-210, October.
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Cited by:

  1. Josep Pijoan-Mas & Virginia Sanchez-Marcos, 2010. "Spain is Different: Falling Trends of Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(1), pages 154-178, January.
  2. Gaetano Martino & Cristiano Perugini, 2008. "Income inequality within European regions: determinants and effects on growth," Quaderni del Dipartimento di Economia, Finanza e Statistica 52/2008, Università di Perugia, Dipartimento Economia.
  3. Eisenhauer, Philipp & Pfeiffer, Friedhelm, 2008. "Assessing intergenerational earnings persistence among German workers," Zeitschrift für ArbeitsmarktForschung - Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 41(2/3), pages 119-137.
  4. repec:iab:iabzaf:v:41:i:2/3:p:119-137 is not listed on IDEAS
  5. Jens Holscher & Cristiano Perugini & Fabrizio Pompei, 2011. "Wage inequality, labour market flexibility and duality in Eastern and Western Europe," Post-Communist Economies, Taylor & Francis Journals, vol. 23(3), pages 271-310.
  6. Ada Ferrer-i-carbonell & X. Ramos & M. Oviedo, 2013. "GINI Country Report: Growing Inequalities and their Impacts in Spain," GINI Country Reports spain, AIAS, Amsterdam Institute for Advanced Labour Studies.
  7. David Aristei & Cristiano Perugini, 2012. "The Drivers of Income Mobility in Europe," Working Papers 262, ECINEQ, Society for the Study of Economic Inequality.
  8. Molina, Jose Alberto & Velilla, Jorge & Ortega, Raquel, 2015. "The decision to become an entrepreneur in Spain: The role of the household financial situation," MPRA Paper 68101, University Library of Munich, Germany.
  9. Åstebro, Thomas & Chen, Jing, 2014. "The entrepreneurial earnings puzzle: Mismeasurement or real?," Journal of Business Venturing, Elsevier, vol. 29(1), pages 88-105.

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