Kässi, Otto (2011): Earnings Dynamics of Men and Women in Finland: Permanent Inequality versus Earnings Instability.
Download (670Kb) | Preview
I decompose the variance of earnings of Finnish male and female workers to its permanent and transitory components and study their evolution between the years 1998 and 2007. I find that the increasing earnings inequality of men and women is driven by both transitory and permanent components of earnings. In addition, I find considerable differences in earnings dynamics between men and women that have been largely neglected in previous studies of earnings dynamics. The inequality among men is dominated by the permanent component. Conversely, permanent and transitory components are of comparable magnitudes to women. As a corollary, men face more stable income paths but with larger permanent earnings differences. Women, on the other hand, face more instable earnings profiles but have smaller permanent differences in earnings.
The correlation between initial earnings inequality and the growth in earnings inequality is found to be positive for both sexes, implying a divergence of earnings profiles towards end of the working career. In addition, earnings instability has risen for both sexes.
|Item Type:||MPRA Paper|
|Original Title:||Earnings Dynamics of Men and Women in Finland: Permanent Inequality versus Earnings Instability|
|Keywords:||Earnings distribution; earnings dynamics; permanent inequality; transitory inequality; variance decomposition|
|Subjects:||J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J62 - Job, Occupational, and Intergenerational Mobility
J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure; Wage Differentials
|Depositing User:||Otto Kässi|
|Date Deposited:||25. Oct 2011 15:16|
|Last Modified:||19. Feb 2013 11:56|
Abowd, John M, & Card, David. 1989. On the Covariance Structure of Earnings and Hours Changes. Econometrica, 57(2), 411–45.
Altonji, Joseph, & Segal, Lewis. 1996. Small-Sample Bias in GMM Estimation of Covariance Structures. Journal of Business and Economic Statistics, 14(3), 353–366.
Baker, Michael. 1997. Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings. Journal of Labor Economics, 15(2), 338–75.
Baker, Michael, & Solon, Gary. 2003. Earnings Dynamics and Inequality among Canadian Men, 1976-1992: Evidence from Longitudinal Income Tax Records. Journal of Labor Economics, 21(2), 267–288.
Blundell, Richard, Pistaferri, Luigi, & Preston, Ian. 2008. Consumption Inequality and Partial Insurance. The American Economic Review, 98(5), pp. 1887–1921.
Cappellari, Lorenzo. 2004. The Dynamics and Inequality of Italian Men’s Earnings. Journal of Human Resources, 39(2), 475 – 499.
Chamberlain, Gary. 1984. Panel data. Chap. 22, pages 1247–1318 of: Griliches, Zvi, & Intriligator, Michael D. (eds), Handbook of Econometrics. Handbook of Econometrics, vol. 2. Elsevier.
Dickens, Richard. 2000. The Evolution of Individual Male Earnings in Great Britain: 1975-95. The Economic Journal, 110(460), 27–49.
Doris, Aedin, O’Neill, Donal, & Sweetman, Olive. 2010 (May). Identification of the Covariance Structure of Earnings Using the GMM Estimator. IZA Discussion Papers 4952. Institute for the Study of Labor (IZA).
Gottschalk, Peter, & Huynh, Minh. 2010. Are Earnings Inequality and Mobility Overstated? The Impact of Nonclassical Measurement Error. The Review of Economics and Statistics, 92(2), 302–315.
Gottschalk, Peter, & Moffitt, Robert. 1994. The Growth of Earnings Instability in the U.S. Labor Market. Brookings Papers on Economic Activity, 25(1994-2), 217–272.
Gustavsson, Magnus. 2008. A New Picture of Swedish Earnings Inequality: Persistent and Transitory Components, 1960-1990. Review of Income and Wealth, 54(3), 324–349.
Guvenen, Fatih. 2009. An Empirical Investigation of Labor Income Processes. Review of Economic Dynamics, 12(1), 58–79.
Haider, Steven J. 2001. Earnings Instability and Earnings Inequality of Males in the United States: 1967-1991. Journal of Labor Economics, 19(4), 799–836.
Hause, John C. 1980. The Fine Structure of Earnings and the On-the-Job Training Hypothesis. Econometrica, 48(4), pp. 1013–1029.
Korkeamäki, Ossi, & Kyyrä, Tomi. 2006. A gender wage gap decomposition for matched employer-employee data. Labour Economics, 13(5), 611–638.
Kwon, Illoong, Milgrom, Eva Meyersson, & Hwang, Seiwoon. 2010. Cohort Effects in Promotions and Wages: Evidence from Sweden and the United States. J. Human Resources, 45(3), 772–808.
Lillard, Lee A., & Weiss, Yoram. 1979. Components of Variation in Panel Earnings Data: American Scientists 1960-70. Econometrica, 47(2), pp. 437–454.
Lundberg, Shelly, & Rose, Elaina. 2000. Parenthood and the earnings of married men and women. Labour Economics, 7(6), 689 – 710.
MaCurdy, Thomas. 2007. Chapter 62 A Practitioner’s Approach to Estimating Intertemporal Relationships Using Longitudinal Data: Lessons from Applications in Wage Dynamics. Handbook of Econometrics, vol. 6, Part 1. Elsevier.
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, 18(1), 83 – 114. Meghir, Costas, & Pistaferri, Luigi. 2004. Income Variance Dynamics and Heterogeneity. Econometrica, 72(1), 1–32.
Moffitt, Robert A., & Gottschalk, Peter. 2002. Trends in the Transitory Variance of Earnings in the United States. The Economic Journal, 112(478), C68–C73.
Napari, Sami. 2008. The Early-career Gender Wage Gap among University Graduates in the Finnish Private Sector. LABOUR, 22(4), 697–733.
Newey, Whitney K. 1985. Generalized method of moments specification testing. Journal of Econometrics, 29(3), 229 – 256.
Oreopoulos, Philip, & von Wachter, Till. 2008. The Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates. IZA Discussion Papers 3578. Institute for the Study of Labor (IZA).
Pissarides, Christopher, Garibaldi, Pietro, Olivetti, Claudia, Petrongolo, Barbara, & Wasmer, Etienne. 2003 (Apr.). Women in the Labour Force: How Well is Europe Doing? Open Access publication. Sciences Po.
Ramos, Xavier. 2003. The Covariance Structure of Earnings in Great Britain, 1991-1999. Economica, 70(278), 353–374.
Shin, Donggyun, & Solon, Gary. 2011. Trends in men’s earnings volatility: What does the Panel Study of Income Dynamics show? Journal of Public Economics, 95(7-8), 973 – 982.
Stock, James H., & Wright, Jonathan H. 2000. GMM with Weak Identification. Econometrica, 68(5), 1055–1096.
Ziliak, James P., Hardy, Bradley, & Bollinger, Christopher. 2011. Earnings Volatility in America: Evidence from Matched CPS. Labour Economics.
Available Versions of this Item
- Earnings Dynamics of Men and Women in Finland: Permanent Inequality versus Earnings Instability. (deposited 25. Oct 2011 15:16) [Currently Displayed]