Inequality for Wage Earners and Self-Employed: Evidence from Panel Data

48 Pages Posted: 23 Oct 2007

See all articles by Pedro Albarran

Pedro Albarran

Universidad Carlos III de Madrid

Raquel Carrasco

Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR)

Maite Martínez-Granado

University of the Basque Country - Department of Foundations of Economic Analysis I; Centre for Economic Policy Research (CEPR)

Date Written: October 23, 2007

Abstract

In this paper we study the evolution of income inequality for employees and self-employed workers. We highlight the importance of separately analyzing these different sources of income to gain a broader understanding of inequality. Using Spanish panel data on income and consumption from the ECPF for the period 1987-96, we decompose the variance of income shocks into a permanent and a transitory component. We find that there are noticeable differences in the evolution of income inequality, as well as in the relative importance of the permanent and transitory components across these groups. Our results point that the evolution of inequality can be basically explained by movements in the variance of the transitory component of income for the self-employed, while for the employees it is mainly driven by the variance of the permanent component, specially at the end of the period. Given these disparities, it seems that these two sources of income should be studied separately and that different policies are suitable for each group.

Keywords: Permanent income inequality, transitory income inequality, consumption, selfemployment, panel data

JEL Classification: D12, D31, D91, E21

Suggested Citation

Albarran, Pedro and Carrasco Perea, Raquel and Martínez-Granado, Maite, Inequality for Wage Earners and Self-Employed: Evidence from Panel Data (October 23, 2007). Banco de España Research Paper No. WP-0734, Available at SSRN: https://ssrn.com/abstract=1023845 or http://dx.doi.org/10.2139/ssrn.1023845

Pedro Albarran

Universidad Carlos III de Madrid ( email )

CL. de Madrid 126
Madrid, Madrid 28903
Spain

Raquel Carrasco Perea (Contact Author)

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9583 (Phone)
+34 91 624 9875 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Maite Martínez-Granado

University of the Basque Country - Department of Foundations of Economic Analysis I ( email )

Avda. Lehendakari Aguirre 83
48015 Bilbao
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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