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State Dependence and Wage Dynamics: A Heterogeneous Markov Chain Model for Wage Mobility in Austria

  • Weber, Andrea

    (Department of Economics and Finance, Institute for Advanced Studies, Vienna)

The behaviour of individual movements in the wage distribution over time can be described by a Markov process. To investigate wage mobility in terms of transitions between quintiles in the wage distribution we apply a fixed effects panel estimation method suggested by Honorè and Kyriazidou (2000). This method of mobility measurement is robust to data contamination like all methods that treat fractiles. Moreover it allows for the inclusion of exogenous variables that change over time. We apply the estimator to a set of individual data form the Austrian social security records and find that disregarding unobserved heterogeneity greatly underestimates wage mobility. Simulated earnings profiles show that women are less mobile than men and have a tendency to be stuck in the lower part of the wage distribution.

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File URL: http://www.ihs.ac.at/publications/eco/es-114.pdf
File Function: First version, 2002
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Paper provided by Institute for Advanced Studies in its series Economics Series with number 114.

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Length: 23 pages
Date of creation: Apr 2002
Date of revision:
Handle: RePEc:ihs:ihsesp:114
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Order Information: Postal: Institute for Advanced Studies - Library, Stumpergasse 56, A-1060 Vienna, Austria

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  1. Frank Cowell & Christian Schluter, 1998. "Income mobility : a robust approach," LSE Research Online Documents on Economics 2210, London School of Economics and Political Science, LSE Library.
  2. Bo E. Honoré & Ekaterini Kyriazidou, 2000. "Panel Data Discrete Choice Models with Lagged Dependent Variables," Econometrica, Econometric Society, vol. 68(4), pages 839-874, July.
  3. 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.
  4. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September.
  5. 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.
  6. Machin, Stephen, 1996. "Wage Inequality in the UK," Oxford Review of Economic Policy, Oxford University Press, vol. 12(1), pages 47-64, Spring.
  7. Magnac, Thierry, 2000. "Subsidised Training and Youth Employment: Distinguishing Unobserved Heterogeneity from State Dependence in Labour Market Histories," Economic Journal, Royal Economic Society, vol. 110(466), pages 805-37, October.
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