WP 18 - Permanent and transitory wage inequality of British men, 1975-2001: Year, age and cohort effects (original) (raw)
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Permanent and transitory wages of British men, 1975–2001: year, age and cohort effects
Journal of Applied Econometrics, 2007
We examine the mean and variance-covariance structure of log-wages over calendar time and the life cycle of British men, hereby controlling for birth cohort effects. We attribute the strong increase in mean log-wage during the 1980s and 1990s to a rise in mean log-wage with the year of birth. This rise is diminishing with the year of birth, which implies lower wage inequality between cohorts with the year of birth. Wage inequality has increased during the 1980s and early 1990s and remained fairly stable in the second half of the 1990s. The year effects, however, show increasing wage inequality up to 2001, mainly due to a strong rise in transitory wage inequality. Transitory wages are strongly correlated over time and an increase in transitory wage inequality therefore has highly persistent inequality consequences. The stable wage inequality in the second half of the 1990s is attributed to lower within-cohort wage inequality for the younger cohorts. The age effects show that permanent wage inequality increases with age, in particular up to age 30 and over age 50.
The Covariance Structure of Earnings in Great Britain, 1991-1999
Economica, 2003
I analyse the dynamic structure of earnings in Great Britain for the period 1991-99 by decomposing the earnings covariance structure into its permanent and transitory components. According to the British Household Panel Study data, earnings inequality of male full-time employees increases over the 1990s. However, earnings mobility may have also increased. That is, for this period earnings persistence falls. This evidence is at odds with previous literature on earnings dynamics both for Britain and other OECD countries. Moreover, human capital and job related characteristics account for nearly all persistent earnings differences and the transitory component is highly persistent.
The dynamics of individual male earnings in Great Britain: 1991-1999
2001
In this paper I analyse the dynamic structure of earnings in Great Britain for the period 1991-1999 by decomposing the earnings covariance structure into its permanent and transitory components. Using information on monthly earnings of male full-time employees from the first nine waves of the British Household Panel Study I find that earnings inequality increases over the Nineties. However, earnings mobility may have also increased. That is, for this period earnings persistence falls. Surprisingly, I also find that relative earnings persistence declines over the life cycle, which implies lower mobility for younger cohorts. This evidence is at odds with previous literature on earnings dynamics both for Britain and other OECD countries. Unlike recent studies, I also consider the effects of observed characteristics on the covariance structure of log earnings and find that human capital and job related characteristics account for nearly all persistent earnings differences and that the transitory component is highly persistent. * This paper is a revised version of a chapter from my PhD thesis at the Institute for Social and Economic Research, University of Essex. Main revisions were carried out during several visits to the European Centre for Analysis in the Social Sciences (ECASS) at the Institute for Social and Economic Research, University of Essex supported by the Access to Research Infrastructure action under the EU Improving Human Potential Programme. I would like to thank Stephen Jenkins for his many and valuable comments and discussions and to Lorenzo Cappellari for giving me his Stata programmes and for his helpful comments. My thanks also to Frank Cowell, John Ermisch and Richard Dickens. The usual disclaimer applies.
Short‐ and Long‐Run Decompositions of Uk Wage Inequality Changes
Bulletin of Economic Research, 2007
ABSTRACTThis paper focuses on the decomposition of observed increases in UK wage inequality since 1979 into the component factors of competition from low‐wage imports and technological change. Building on recent work by Abrego and Whalley, we argue that the length of production run and degree of fixity of factors is crucial in such analyses. If the response of labour markets to date is a short‐run response, in which factors and output have not adjusted fully, then analysis of the causes of increased inequality is substantially altered relative to a long‐run factors mobile world.
This paper aims to investigate the cyclical changes in the wage structure of the United Kingdom over the period 1972-2002 using the General Household Survey (GHS). Wage structure of the UK shows a cyclical pattern, which may be from the different wage cyclicality of the top, middle and bottom percentile groups. Higher educated male workers have experienced a faster growth of the education premiums so that the wages of males have become more dispersed after the 1970s. However, female workers with only primary education have faster wage growth than higher educated ones. Moreover, the experience premiums of females have grown faster than males and become similar to males in recent years. Changes in the skill endowments and market valuation can account for the cyclical changes in female earnings structure over the entire period. The residual earnings inequality accounts for more than half changes in overall earnings inequality of males, which cannot be explained by changes in skill endowments and market returns. The evolution of the wage structure, including changes in gender gap, overall wage inequality, skill premiums as well as residual wage inequality are affected by business cycle.
Inter and Intra-regional Wage Inequalities in the UK: sources and evolution
Wage inequalities in the UK and elsewhere increased substantially over the last two decades and remained at historically high levels throughout the 1990s. This paper investigates the sources of these inequalities by performing a number of decompositions on the distribution of wages and its change over time. By far, the temporal evolution of the returns to occupations (towards more inequality) is the main determinant of the marked increase in wage inequalities. Nevertheless, more than two thirds of the latter are found to be located within the same region and gender, occupational and education group, with the implication that other factors, not directly related to labour force characteristics, determine the level of wage inequalities. When comparing the regional wage distributions over time, we find that cross-regional differences in wage distributions are again largely deter mined by differences in the occupational composition of the workforce and in the returns to occupations.
Labour market inequality and the changing life cycle profile of male and female wages
We estimate the distribution of life cycle wages for cohorts of prime-age men and women in the US. A quantile selection model is used to consistently recover the full distribution of wages accounting for systematic differences in employment, permitting us to construct genderand education-specific age-wage profiles, as well as measures of life cycle inequality within-and between-education groups and gender. Although common within-group time effects are shown to be a key driver of labor market inequalities, important additional differences by birth cohort emerge with older cohorts of higher educated men partly protected from the lower skill prices of the 1970s. The gender wage gap is found to increase sharply across the distribution in the first half of working life, coinciding with fertility cycles of women. After age 40, there has been substantial gender wage convergence in recent cohorts relative to those born prior to the 1950s.
More or Less Unequal? Evidence on the Pay of Men and Women from the British Birth Cohort Studies
Gender, Work & Organization, 2007
Gender pay differences are not merely a problem for women returning to work and part‐time employees, but also for those in full‐time, continuous careers. In data from cohort studies, the gender wage gap for full‐time workers in their early thirties fell between 1978 and 2000. This equalization reflects improvements in women’s education and experience rather more than a move towards equal treatment. Indeed, had the typical woman full‐timer in 2000 been paid at men’s rates she would have actually received higher pay than the typical man. Within one cohort, passing from age 33 to 42, gender inequality increased. This was partly due to differences in the qualifications and experience of the women in employment at those points, but unequal treatment also rose among women employed full time at both ages.
2007
We examine trends in wage inequality in the US and other countries over the past four decades. We show that there has been a secular increase in the 90-50 wage differential in the US and the UK since the late 1970s. By contrast the 50-10 differential rose mainly in the 1980s and flattened or fell in the 1990s and 2000s. We analyze the reasons for these trends and conclude that a version of the skill biased technical change hypothesis combined with institutional changes (the decline in the minimum wage and trade unions) continues to offer the best explanation for the observed patterns of change.