Determinants of Household Earnings Inequality: The Role of Labour Market Trends and Changing Household Structure

Wen-Hao Chen (), Michael Förster and Ana Llena-Nozal ()

No 591, LIS Working papers from LIS Cross-National Data Center in Luxembourg

Abstract: This article assesses various underlying driving factors for the evolution of household earnings inequality or 23 OECD countries from the mid-1980s to the mid-2000s. There are a number of factors at play. Some are related to labour market trends – increasing dispersion of individual wages and changes in men’s and women’s employment rates. Others relate to shifts in household structures and family formation – more single-headed households and increased earnings correlation among partners in couples. The contribution of each of these factors is estimated using a semi parametric decomposition technique. The results reveal that marital sorting and household structure changes contributed, albeit moderately, to increasing household earnings inequality, while rising women’s employment exerted a sizable equalising effect. However, changes in labour market factors, in particular increases in men’s earnings disparities, were identified as the main driver of household earnings inequality, contributing between one-third and one-half to the overall increase in most countries. Sensitivity analysis applying a reversed-order decomposition suggests that these results are robust.

Keywords: Earnings inequality; assortative mating; female labour supply; decomposition (search for similar items in EconPapers)
JEL-codes: D31 I30 J12 J22 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2013-06
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Citations: View citations in EconPapers (2)

Published in Summary versions of this paper have been published as chapter 5 in Divided We Stand – Why Inequality Keeps Rising, Paris: OECD Publishing, 2011 and in OECD Journal: Economic Studies, Vol. 2013/1, http://dx.doi.org/10.1787/eco_studies-2013-5k43jt5vcdvl

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