Empirical Economics

, Volume 46, Issue 2, pp 451–477 | Cite as

Earnings dynamics of men and women in Finland: permanent inequality versus earnings instability

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Abstract

I decompose the earnings variance of Finnish male and female workers into its permanent and transitory components using the approach of Baker (J Labor Econ,15:338–375, 1997) and Haider (J Labor Econ, 19:799–836, 2001) in the spirit of scientific replication. I find that the increasing earnings inequality of men and women is driven by both the transitory and permanent components of earnings. In addition, I find considerable differences in the earnings dynamics of men and women, that have been largely neglected in previous studies of earnings dynamics. The inequality among men is dominated by the permanent component. Conversely, permanent and transitory components are of comparable magnitudes to women. As a corollary, men experience more stable income paths but display larger permanent earnings differences. Women, on the other hand, face more unstable earnings profiles but show smaller permanent differences in earnings.

Keywords

Earnings distribution Earnings dynamics Permanent inequality Transitory inequality Variance decomposition 

JEL Classification

J31 J62 

Notes

Acknowledgments

I am thankful to the two anonymous referees, Bernd Fitzenberger (the editor), Gero Dolfus, Anssi Kohonen, Heikki Pursiainen, Tatu Westling and the seminar participants at the HECER Econometrics and Computational Economics seminar for various useful comments and to Merja Kiljunen and Marjo Pyy-Martikainen from Statistics Finland for helping me with the data. Financial support from the Kone Foundation and OP Pohjola foundation is gratefully acknowledged.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.University of Helsinki and HECERHelsinkiFinland

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