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Earnings Dynamics and Inequality among Men in Luxembourg, 1988-2004: Evidence from Administrative Data

Author

Listed:
  • Sologon, Denisa Maria

    (LISER (CEPS/INSTEAD))

  • O'Donoghue, Cathal

    (National University of Ireland, Galway)

Abstract
Starting with the late 1980s and intensifying after early 1990s, Luxembourg evolved from an industrial economy to an economy dominated by the tertiary sector, which relies heavily on the cross-border workforce. This paper explored the implications of these labour market structural changes for the structure of earnings inequality and earnings mobility. Using an extraordinary longitudinal dataset drawn from administrative records on professional career, we decomposed Luxembourg’s growth in earnings inequality into persistent and transitory components and explored the extent to which changes in cross-sectional earnings inequality between 1988 and 2004 reflect changes in the transitory or permanent components of earnings. Thanks to the richness of the Luxembourgish data set, we are able to estimate a much richer model that nests the various specifications used in the US, Canadian and European literature up to date, thus rejecting several restrictions commonly imposed in the literature. We find that the growth in earnings inequality reflects an increase in long-term inequality and a decrease in earnings instability, and is accompanied by a decrease in earnings mobility. Thus in 2004 compared with 1988, low wage men in Luxembourg are worst off both in terms of their relative wage and in terms of their opportunity of improving their relative income position in a lifetime perspective.

Suggested Citation

  • Sologon, Denisa Maria & O'Donoghue, Cathal, 2010. "Earnings Dynamics and Inequality among Men in Luxembourg, 1988-2004: Evidence from Administrative Data," IZA Discussion Papers 5014, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5014
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    References listed on IDEAS

    as
    1. Denisa Maria Sologon & Cathal O'Donoghue, 2009. "Earnings Dynamics and Inequality in EU, 1994-2001," SOEPpapers on Multidisciplinary Panel Data Research 184, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. Gustavsson, Magnus, 2004. "Trends in the Transitory Variance of Earnings: Evidence from Sweden 1960-1990 and a Comparison with the United States," Working Paper Series 2004:11, Uppsala University, Department of Economics.
    3. Sologon, Denisa Maria & O'Donoghue, Cathal, 2009. "Equalizing or Disequalizing Lifetime Earnings Differentials? Earnings Mobility in the EU: 1994-2001," IZA Discussion Papers 4642, Institute of Labor Economics (IZA).
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    Cited by:

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    2. Solomon W. Polachek & Tirthatanmoy Das & Rewat Thamma-Apiroam, 2015. "Micro- and Macroeconomic Implications of Heterogeneity in the Production of Human Capital," Journal of Political Economy, University of Chicago Press, vol. 123(6), pages 1410-1455.

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    More about this item

    Keywords

    panel data; wage distribution; inequality; mobility;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General

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