Earnings inequality, the business cycle, and the life cycle

Diana Alessandrini, Stephen Kosempel, Alessandra Pelloni and Thanasis Stengos

No 1602, Working Papers from University of Guelph, Department of Economics and Finance

Abstract: We investigate the relationship between short run macroeconomic conditions and earnings inequality. In our empirical work we establish a set of stylized facts: (1) earnings inequality is counter-cyclical; (2) the bottom quintile of the earnings distribution is the most volatile; (3) business cycles have a low or no impact on wage inequality, but they have a strong impact on hours worked inequality; and (4) the impact of an economic contraction on inequality is weaker in economies with higher levels of education. Then, to explain these observations we develop a stochastic Ben-Porath model of human capital accumulation with life cycle dynamics.

Keywords: Inequality; Business cycles; Human capital accumulation (search for similar items in EconPapers)
JEL-codes: E24 E32 I24 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2016
New Economics Papers: this item is included in nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:gue:guelph:2016-02

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