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Assessing the equalizing force of mobility using short panels: France 1990-2000

  • Stéphane Bonhomme

    ()

    (Institute for Fiscal Studies and University of Chicago)

  • Jean-Marc Robin

    ()

    (Institute for Fiscal Studies and cemmap and Sciences Po)

In this paper, we document whether and how much the equalizing force of earnings mobility has changed in France in the 1990s. For this purpose, we use a representative three-year panel,the French Labour Force Survey. We develop a model of earnings dynamics that combines a flexible specification of marginal earnings distributions (to fit the large cross-sectional dimension of the data) with a tight parametric representation of the dynamics (adapted to the short timeseries dimension). Log earnings are modelled as the sum of a deterministic component, an individual fixed effect, and a transitory component which is assumed first-order Markov. The transition probability of the transitory component is modelled as a one-parameter Plackett copula. We estimate this model using a sequential EM algorithm. We exploit the estimated model to study employment/earnings inequality in France over the 1990-2002 period. We show that, in phase with business cycle fluctuations (a recession in 1993 and two peaks in 1990 and 2000), earnings mobility decreases when cross-section inequality and unemployment risk increase. We simulate individual earnings trajectories and compute present values of lifetime earnings over various horizons. Inequality presents a hump-shaped evolution over the period, with a 9% increase between 1990 and 1995 and a decrease afterwards.Accounting for unemployment yields an increase of 11%. Moreover, this increase is persistent, as it translates into a 12% increase in the variance of log present values. The ratio of inequality in present values to inequality in one-year earnings, a natural measure of immobility or of the persistence of inequality, remains remarkably constant over the business cycle.

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File URL: http://cemmap.ifs.org.uk/wps/cwp208.pdf
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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP02/08.

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Date of creation: Feb 2008
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Handle: RePEc:ifs:cemmap:02/08
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