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Wage Mobility in the United States

  • Moshe Buchinsky
  • Jennifer Hunt

This paper examines the mobility of individuals through the wage and earnings distributions. This is of extreme importance since mobility has a direct implication for the way one views the vast changes in wage and earnings inequality in the United States over the last few decades. The measures of wage and earnings mobility analyzed are based on data for individuals surveyed in the National Longitudinal Survey for Youth from 1979 to 1991. We introduce summary measures of mobility computed over varying time horizons in order to examine how the effect on measured inequality as the time horizon is increased. The results suggest that mobility is predominantly within group mobility and increases most rapidly when the time horizon is extended up to four years, reducing wage inequality by 12-26%. We proceed therefore with more detailed examination of short-term (year-to-year) within group mobility, by estimating non-parametrically transition probabilities among quintiles of the distribution. We find that the staying probabilities, by quintiles, were higher at the higher quintiles throughout the period for both wages and earnings, and that mobility is declining over time. Hence, this paper suggests that while the level of wage inequality in the United States is somewhat lower once mobility is taken into account, the sharp increase in inequality during the 1980's is worse than it appears, due to falling mobility over time.

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File URL: http://www.nber.org/papers/w5455.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5455.

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Date of creation: Feb 1996
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Publication status: published as Review of Economics and Statistics, (August 1999).
Handle: RePEc:nbr:nberwo:5455
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page: http://www.nber.org
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  1. 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.
  2. John Bound & Alan B. Krueger, 1989. "The Extent of Measurement Error In Longitudinal Earnings Data: Do Two Wrongs Make A Right?," NBER Working Papers 2885, National Bureau of Economic Research, Inc.
  3. Bound, John, et al, 1994. "Evidence on the Validity of Cross-Sectional and Longitudinal Labor Market Data," Journal of Labor Economics, University of Chicago Press, vol. 12(3), pages 345-68, July.
  4. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September.
  5. Maasoumi, Esfandiar & Zandvakili, Sourushe, 1990. "Generalized entropy measures of mobility for different sexes and income levels," Journal of Econometrics, Elsevier, vol. 43(1-2), pages 121-133.
  6. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-45, March.
  7. Shorrocks, Anthony F, 1984. "Inequality Decomposition by Population Subgroups," Econometrica, Econometric Society, vol. 52(6), pages 1369-85, November.
  8. Jonathan Morduch & Terry Sicular, 2002. "Rethinking Inequality Decomposition, With Evidence from Rural China," Economic Journal, Royal Economic Society, vol. 112(476), pages 93-106, January.
  9. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
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