Journal Article

Assessing the Equalizing Force of Mobility Using Short Panels: France, 1990–2000

Stéphane Bonhomme and Jean-Marc Robin

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 76, issue 1, pages 63-92
Published in print January 2009 | ISSN: 0034-6527
Published online January 2009 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2008.00521.x
Assessing the Equalizing Force of Mobility Using Short Panels: France, 1990–2000

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In this paper, we document whether and how much the equalizing force of earnings mobility has changed in France in the 1990's. For this purpose, we use a representative three-year panel, the French Labour Force Survey. We develop a model of earnings dynamics that combines a flexible specification of marginal earnings distributions (to fit the large cross-sectional dimension of the data) with a tight parametric representation of the dynamics (adapted to the short time-series dimension). Log earnings are modelled as the sum of a deterministic component, an individual fixed effect and a transitory component which is assumed first-order Markov. The transition probability of the transitory component is modelled as a one-parameter Plackett copula. We estimate this model using a sequential expectation-maximization algorithm.

We exploit the estimated model to study employment/earnings inequality in France over the 1990–2002 period. We show that, in phase with business-cycle fluctuations (a recession in 1993 and two peaks in 1990 and 2000), earnings mobility decreases when cross-section inequality and unemployment risk increase. We simulate individual earnings trajectories and compute present values of lifetime earnings for various horizons. Inequality presents a hump-shaped evolution over the period, with a 9% increase between 1990 and 1995 and a decrease afterwards. Accounting for unemployment yields an increase of 11%. Moreover, this increase is persistent, as it translates into a 12% increase in the variance of log present values. The ratio of inequality in present values to inequality in one-year earnings, a natural measure of immobility or of the persistence of inequality, remains remarkably constant over the business cycle.

Keywords: J31; J62

Journal Article.  10378 words.  Illustrated.

Subjects: Wages, Compensation, and Labour Costs ; Mobility, Unemployment, and Vacancies

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