Flexicurity, Wage Dynamics and Inequality Over the Life-Cycle

41 Pages Posted: 5 Sep 2011

See all articles by Paul Bingley

Paul Bingley

Aarhus University - National Centre for Register-Based Research

Lorenzo Cappellari

Catholic University of the Sacred Heart of Milan; University of Essex - Institute for Social and Economic Research (ISER); Institute for the Study of Labor (IZA)

Niels Westergaard-Nielsen

Copenhagen Business School; IZA Institute of Labor Economics

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Date Written: August 31, 2011

Abstract

We investigate the relationship between life-cycle wages and flexicurity in Denmark. We separate permanent from transitory wages and characterise flexicurity using membership of unemployment insurance funds. We find that flexicurity is associated with lower wage growth heterogeneity over the life-cycle and greater wage instability, changing the nature of wage inequality from permanent to transitory. While we are in general unable to formally test for moral hazard against adverse selection into unemployment insurance membership, robustness checks suggest that moral hazard is the relevant interpretation.

Keywords: unemployment insurance, wage dynamics, wage inequality, wage instability

JEL Classification: J310, J650

Suggested Citation

Bingley, Paul and Cappellari, Lorenzo and Westergaard-Nielsen, Niels, Flexicurity, Wage Dynamics and Inequality Over the Life-Cycle (August 31, 2011). CESifo Working Paper Series No. 3561, Available at SSRN: https://ssrn.com/abstract=1922688

Paul Bingley

Aarhus University - National Centre for Register-Based Research ( email )

8000 Ã…rhus C, 8210
Denmark

Lorenzo Cappellari (Contact Author)

Catholic University of the Sacred Heart of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

University of Essex - Institute for Social and Economic Research (ISER)

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Niels Westergaard-Nielsen

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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