Earnings Mobility and Inequality: An Integrated Framework

46 Pages Posted: 20 Dec 2012

See all articles by Paul Gregg

Paul Gregg

University of Bath - Department of Social and Policy Sciences

Claudia Vittori

University of Rome La Sapienza

Rosanna Scutella

University of Melbourne - Melbourne Institute of Applied Economic and Social Research

Date Written: November 2012

Abstract

In this paper we propose an integrated framework for the analysis of earnings inequality and mobility, which enables the analysis of the distributional dimension of inequality reduction from mobility, an assessment of the economic drivers of mobility and a sense of which drivers are equalising and dis-equalising. In particular we are able to capture the extent to which life-cycle characteristics, key life events, job related characteristics, and changes in working time affect overall mobility and inequality. The framework also offers a bounded approach to isolating the underlying inequality reduction resulting from mobility from measurement error which can otherwise lead to a substantial upward bias. Using data from the Australian HILDA survey we find evidence of a sizable degree of earnings mobility in Australia over the years 2001/2 to 2008/9. The raw inequality reduction resulting from economic mobility was 0.148 Gini points from an initial estimate of 0.368, however, the bounded range based on two alternative versions of two stage estimation lies between 0.072 and 0.102 or between ΒΌ and 1/3 of original inequality. We show how the inequality reduction from mobility is primarily driven in the bottom part of the initial distribution, with the upper tail being particularly prone to measurement issues. A sizeable part of the identified mobility is simply driven by age-earnings growth that sees more rapid wage increases for younger workers and wage progression among women in notably stronger in reducing inequality because they start lower in distribution. Yet this rather smooth picture of earnings rising with age is shown to be substantially driven by a series of less frequent step changes associated with job-tojob moves, promotions and taking on more responsibility. There are also shocks which run against this equalising process, most notably job loss, which has substantial negative effects on earnings and disproportionately falls on lower waged workers.

Keywords: earnings, mobility, distributional analysis, measurement error

JEL Classification: D31, J01, J60

Suggested Citation

Gregg, Paul and Vittori, Claudia and Scutella, Rosanna, Earnings Mobility and Inequality: An Integrated Framework (November 2012). Melbourne Institute Working Paper No. 26. Available at SSRN: https://ssrn.com/abstract=2191771 or http://dx.doi.org/10.2139/ssrn.2191771

Paul Gregg

University of Bath - Department of Social and Policy Sciences ( email )

Claverton Down
Bath, BA7 2AY
United Kingdom

Claudia Vittori

University of Rome La Sapienza ( email )

Via del Castro Laurenziano
Roma, Rome 00161
Italy

Rosanna Scutella (Contact Author)

University of Melbourne - Melbourne Institute of Applied Economic and Social Research ( email )

Level 5, FBE Building, 111 Barry Street
Parkville, Victoria 3010
Australia
+61 3 8344 8175 (Phone)
+61 3 8344 5630 (Fax)

HOME PAGE: http://wff1.ecom.unimelb.edu.au/iaesrwww/people/rscutella/

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