Decomposing the Sources of Earnings Inequality: Assessing the Role of Reallocation

43 Pages Posted: 17 Dec 2011  

Fredrik Andersson

Office of the Comptroller of the Currency (OCC)

Elizabeth E. Davis

University of Minnesota - Department of Applied Economics

Matthew Freedman

University of California, Irvine - Department of Economics

Julia Lane

Wagner Graduate School of Public Service; Institute for the Study of Labor (IZA)

Brian P. McCall

University of Minnesota - Twin Cities - Carlson School of Management

Lee Kristin Sandusky

U.S. Census Bureau

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Abstract

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.

Keywords: inequality, linked employer-employee data, sorting

JEL Classification: J0, J30

Suggested Citation

Andersson, Fredrik and Davis, Elizabeth E. and Freedman, Matthew and Lane, Julia and McCall, Brian P. and Sandusky, Lee Kristin, Decomposing the Sources of Earnings Inequality: Assessing the Role of Reallocation. IZA Discussion Paper No. 6182. Available at SSRN: https://ssrn.com/abstract=1973911

Per Fredrik Daniel Andersson (Contact Author)

Office of the Comptroller of the Currency (OCC) ( email )

400 7th St. SW
Washington, DC 20219-0001
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202-649-5528 (Phone)
571-465-3246 (Fax)

Elizabeth E. Davis

University of Minnesota - Department of Applied Economics ( email )

1994 Buford Avenue
St. Paul, MN 55108
United States

Matthew Freedman

University of California, Irvine - Department of Economics ( email )

3151 Social Science Plaza
Irvine, CA 92697-5100
United States

Julia Lane

Wagner Graduate School of Public Service ( email )

The Puck Building
295 Lafayette Street, Second Floor
New York, NY 10012
United States

Institute for the Study of Labor (IZA) ( email )

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

HOME PAGE: http://www.iza.org

Brian P. McCall

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

Lee Kristin Sandusky

U.S. Census Bureau ( email )

4600 Silver Hill Road
Washington, DC 20233
United States

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