Working paper

Heterogeneity and Wage Inequalities over the Life Cycle

Thierry Magnac, and Sébastien Roux

Abstract

Using panel data from a single cohort of French male wage earners observed over a long span of 30 years starting at their entry in the labor market, we estimate parameters of a human capital investment model by random and fixed effect methods. Individual wage proles are described by their individual-specific level, slope and curvature. This allows a fine decomposition of the variance of (log-)wages at different times of the life-cycle and in the long run. Among salient results, short run time-varying inequalities are shown to be larger that long run inequality by a factor of 20% to 80%. Individual permanent heterogeneity explain between 60 to 90% of the variance of wages. Single dimensional heterogeneity explains well those variances at a point in time but not over the whole period or in the long run. Multidimensional heterogeneity is needed and in particular under the form of a horizon individual effect.

JEL codes

  • C33: Panel Data Models • Spatio-temporal Models
  • D91: Intertemporal Household Choice • Life Cycle Models and Saving
  • I24: Education and Inequality
  • J24: Human Capital • Skills • Occupational Choice • Labor Productivity
  • J31: Wage Level and Structure • Wage Differentials

Reference

Thierry Magnac, and Sébastien Roux, Heterogeneity and Wage Inequalities over the Life Cycle, TSE Working Paper, n. 19-1041, October 2019.

See also

Published in

TSE Working Paper, n. 19-1041, October 2019