Decomposing the Sources of Earnings Inequality: Assessing the Role of Reallocation
American Institutes for Research; Institute for the Study of Labor (IZA)
Office of the Comptroller of the Currency (OCC)
Elizabeth E. Davis
University of Minnesota - Department of Applied Economics
Brian P. McCall
University of Minnesota - Twin Cities - Carlson School of Management
U.S. Census Bureau
October 27, 2011
This paper exploits longitudinal employer-employee matched data from the U.S. Census Bureau to investigate the contribution of worker and firm reallocation to changes in earnings inequality within and across industries between 1992 and 2003. We find that factors that cannot be measured using standard cross-sectional data, including the entry and exit of firms and the sorting of workers across firms, are important sources of changes in earnings distributions over time. Our results also suggest that the dynamics driving changes in earnings inequality are heterogeneous across industries.
Number of Pages in PDF File: 40
Keywords: matched employer-employee data, earnings inequality, job reallocation, worker reallocation, firm entry, firm exit
JEL Classification: J00, J63, J31
Date posted: June 1, 2006 ; Last revised: October 27, 2011
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