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Flexicurity, wage dynamics and inequality over the life-cycle

  • Paul Bingley
  • Lorenzo Cappellari
  • Niels Westergård-Nielsen

We investigate the relationship between life-cycle wages and flexicurity in Denmark. We separate permanent from transitory wages and characterise flexicurity using membership of unemployment insurance funds. We find that flexicurity is associated with lower wage growth heterogeneity over the life-cycle and greater wage instability, changing the nature of wage inequality from permanent to transitory. While we are in general unable to formally test for moral hazard against adverse selection into unemployment insurance membership, robustness checks suggest that moral hazard is the relevant interpretation.

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File URL: http://www.dt.tesoro.it/export/sites/sitodt/modules/documenti_it/analisi_progammazione/working_papers/WP_N._2-2012.pdf
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Paper provided by Department of the Treasury, Ministry of the Economy and of Finance in its series Working Papers with number 2.

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Length: 41
Date of creation: Mar 2012
Date of revision:
Handle: RePEc:itt:wpaper:wp2012-2
Contact details of provider: Web page: http://www.dt.tesoro.it
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  1. Robert Gibbons & Michael Waldman, 1999. "A Theory Of Wage And Promotion Dynamics Inside Firms," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1321-1358, November.
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  9. Tricia Gladden & Christopher Taber, 2009. "The relationship between wage growth and wage levels," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(6), pages 914-932.
  10. Torben Andersen & Michael Svarer, 2007. "Flexicurity – Labour Market Performance in Denmark," CESifo Working Paper Series 2108, CESifo Group Munich.
  11. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-75, April.
  12. Burdett, Kenneth, 1978. "The testing and sorting functions of higher education," Journal of Public Economics, Elsevier, vol. 10(1), pages 117-122, August.
  13. Neumann, George & Pedersen, Peder J. & Westergard-Nielsen, Niels, 1991. "Long-run international trends in aggregate unionization," European Journal of Political Economy, Elsevier, vol. 7(3), pages 249-274, October.
  14. Haider, S.J., 2000. "Earnings Instability and Earnings Inequality of Males in the United States: 1967-1991," Papers 00-15, RAND - Labor and Population Program.
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  16. Lorenzo Cappellari, 2004. "The Dynamics and Inequality of Italian Men’s Earnings: Long-term Changes or Transitory Fluctuations?," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
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