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Heterogeneity and Wage Inequalities over the Life Cycle

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  • Magnac, Thierry
  • Roux, Sébastien

Abstract

Using panel data from a single cohort of French male wage earners observed over a long span of 30 years starting at their entry in the labor market, we estimate parameters of a human capital investment model by random and fixed effect methods. Individual wage proles are described by their individual-specific level, slope and curvature. This allows a fine decomposition of the variance of (log-)wages at different times of the life-cycle and in the long run. Among salient results, short run time-varying inequalities are shown to be larger that long run inequality by a factor of 20% to 80%. Individual permanent heterogeneity explain between 60 to 90% of the variance of wages. Single dimensional heterogeneity explains well those variances at a point in time but not over the whole period or in the long run. Multidimensional heterogeneity is needed and in particular under the form of a horizon individual effect.

Suggested Citation

  • Magnac, Thierry & Roux, Sébastien, 2019. "Heterogeneity and Wage Inequalities over the Life Cycle," TSE Working Papers 19-1041, Toulouse School of Economics (TSE), revised Mar 2021.
  • Handle: RePEc:tse:wpaper:123621
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    Cited by:

    1. Koen Jochmans & Martin Weidner, 2018. "Inference on a Distribution from Noisy Draws," Papers 1803.04991, arXiv.org, revised Sep 2019.

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    More about this item

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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