Heterogeneity and Wage Inequalities Over the Life Cycle

72 Pages Posted: 28 Jul 2020 Last revised: 16 Aug 2020

See all articles by Thierry Magnac

Thierry Magnac

Toulouse School of Economics; University of Toulouse 1 - Industrial Economic Institute (IDEI); IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Sébastien Roux

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST)

Date Written: July 2020

Abstract

Using data on French male wage employees observed over 30 years, we estimate individual-specific parameters of a human capital investment model by random and fixed effect methods. Individual wage profiles are described by a level, a slope and a curvature. Among the salient results, cross-section inequalities exceed life-cycle inequalities by a factor increasing from 20% to 80%, and permanent heterogeneity explains between 60 and 90% of the variance of wages. Multidimensional heterogeneity, and in particular the heterogeneous curvature of individual profiles, is found to be necessary to properly describe the stochastic process of wages over the life-cycle.

Keywords: Human capital investment, inequality, post-schooling wage growth, random and fixed effects, wage dynamics

JEL Classification: C33, D91, I24, J24, J31

Suggested Citation

Magnac, Thierry and Roux, Sébastien, Heterogeneity and Wage Inequalities Over the Life Cycle (July 2020). CEPR Discussion Paper No. DP15083, Available at SSRN: https://ssrn.com/abstract=3661427

Thierry Magnac (Contact Author)

Toulouse School of Economics ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France

University of Toulouse 1 - Industrial Economic Institute (IDEI) ( email )

Manufacture des Tabacs
21 Allee de Brienne bat. F
Toulouse Cedex, F-31000
France

IZA Institute of Labor Economics ( email )

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Sébastien Roux

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

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