Unemployment Insurance, Wage Dynamics and Inequality Over the Life Cycle

56 Pages Posted: 19 Jan 2013

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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Abstract

We investigate the relationship between life cycle wages and individual membership of unemployment insurance schemes in Denmark. We separate permanent from transitory wages and characterise them using membership of unemployment insurance funds. We find that unemployment insurance 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, robustness checks suggest that moral hazard is the relevant interpretation.

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

JEL Classification: J31, J65

Suggested Citation

Bingley, Paul and Cappellari, Lorenzo and Westergaard-Nielsen, Niels, Unemployment Insurance, Wage Dynamics and Inequality Over the Life Cycle. IZA Discussion Paper No. 7128, Available at SSRN: https://ssrn.com/abstract=2203278

Paul Bingley (Contact Author)

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

8000 Ã…rhus C, 8210
Denmark

Lorenzo Cappellari

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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