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

Denisa Sologon and Cathal O'Donoghue

No 5014, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: panel data; wage distribution; inequality; mobility (search for similar items in EconPapers)
JEL-codes: C23 D31 J31 J60 (search for similar items in EconPapers)
Pages: 80 pages
Date: 2010-06
New Economics Papers: this item is included in nep-eur and nep-lab
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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