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Earnings inequality, the business cycle, and the life cycle

Author

Listed:
  • Diana Alessandrini

    () (Department of Economics, Auburn University)

  • Stephen Kosempel

    () (Department of Economics and Finance, University of Guelph)

  • Alessandra Pelloni

    () (Department of Economics, University of Rome ``Tor Vergata'')

  • Thanasis Stengos

    () (Department of Economics and Finance, University of Guelph)

Abstract

We investigate the relationship between short run macroeconomic conditions and earnings inequality. In our empirical work we establish a set of stylized facts: (1) earnings inequality is counter-cyclical; (2) the bottom quintile of the earnings distribution is the most volatile; (3) business cycles have a low or no impact on wage inequality, but they have a strong impact on hours worked inequality; and (4) the impact of an economic contraction on inequality is weaker in economies with higher levels of education. Then, to explain these observations we develop a stochastic Ben-Porath model of human capital accumulation with life cycle dynamics.

Suggested Citation

  • Diana Alessandrini & Stephen Kosempel & Alessandra Pelloni & Thanasis Stengos, 2016. "Earnings inequality, the business cycle, and the life cycle," Working Papers 1602, University of Guelph, Department of Economics and Finance.
  • Handle: RePEc:gue:guelph:2016-02
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    File URL: http://www.uoguelph.ca/economics/repec/workingpapers/2016/2016-02.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Inequality; Business cycles; Human capital accumulation;

    JEL classification:

    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity

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