Permanent versus Transitory Wage Differentials and the Inequality-Hours Hypothesis

Magnus Gustavsson

No 2013:12, Working Paper Series, Center for Labor Studies from Uppsala University, Department of Economics

Abstract: This paper disentangles the effect of inequality in permanent and transitory wages on hours worked by, first, estimating the two components for Swedish industries and, second, using the resulting estimates as explanatory variables in an hours-worked equation. Consistent with Bell and Freeman’s (2001) inequality-hours hypothesis, permanent wage differentials are found to have a positive effect on individuals’ hours of work while transitory wage differentials have no effect. However, the analysis also shows that, in estimated hours-worked equations, inequality in observed wages is potentially a good approximation for inequality in permanent wages.

Keywords: labor supply; wage dispersion; wage dynamics (search for similar items in EconPapers)
JEL-codes: J22 J31 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2013-10-15
New Economics Papers: this item is included in nep-eur, nep-lab, nep-lma and nep-ltv
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Journal Article: Permanent versus transitory wage differentials and the inequality-hours hypothesis (2013)
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