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Permanent and transitory wages of British men, 1975–2001: year, age and cohort effects
Author(s) -
Kalwij Adriaan S.,
Alessie Rob
Publication year - 2007
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.941
Subject(s) - economics , wage , inequality , wage inequality , cohort , cohort effect , labour economics , demographic economics , mathematics , statistics , mathematical analysis
We examine the mean and variance–covariance structure of log‐wages over calendar time and the life cycle of British men, hereby controlling for birth cohort effects. We attribute the strong increase in mean log‐wage during the 1980s and 1990s to a rise in mean log‐wage with the year of birth. This rise is diminishing with the year of birth, which implies lower wage inequality between cohorts with the year of birth. Wage inequality has increased during the 1980s and early 1990s and remained fairly stable in the second half of the 1990s. The year effects, however, show increasing wage inequality up to 2001, mainly due to a strong rise in transitory wage inequality. Transitory wages are strongly correlated over time and an increase in transitory wage inequality therefore has highly persistent inequality consequences. The stable wage inequality in the second half of the 1990s is attributed to lower within‐cohort wage inequality for the younger cohorts. The age effects show that permanent wage inequality increases with age, in particular up to age 30 and over age 50. Copyright © 2007 John Wiley & Sons, Ltd.