The Shift from Persistent Inequality to Earnings Instability in Belgium

Using rich administrative data from 2005 to 2021 for Belgium, this paper analyses how earnings dynamics differ across socio-demographic groups, focusing on gender and education. We find that while permanent earnings inequality remains the dominant source of overall earnings inequality in Belgium, it has declined modestly in recent years. We further decompose the sources of permanent inequality and find that this decline is mainly driven by reductions in between-group inequality, especially between men and women, and falling permanent earnings inequality among women. These factors combined, outweigh the disequalising effects from compositional shifts in the educational structure of the population. On the other hand, earnings instability has risen, particularly for the low- and medium-educated and more generally for men. These groups additionally exhibit higher persistence in transitory shocks. Our findings show that stability in overall inequality trends can mask structural changes in the nature of inequality, and highlights the importance of exploring the heterogeneity in earnings dynamics across skill groups.