Friday, 5 October 2012

Decomposing the Sources of Earnings Inequality: Assessing the Role of Reallocation

an article by Fredrik Andersson (Office of the Comptroller of the Currency), Elizabeth E. Davis (University of Minnesota), Matthew L. Freedman (Cornell University), Julia I. Lane (American Institutes for Research, University of Strasbourg), Brian P. Mccall (University of Michigan) and 5, Kristin Sandusky (6U.S. Census Bureau) published in Industrial Relations: A Journal of Economy and Society Volume 51 Issue 4 (October 2012)


This study exploits longitudinal employer–employee matched data from the U.S. Census Bureau to investigate the contribution of worker and firm reallocation to changes in earnings inequality within and across industries between 1992 and 2003.

We find that factors that cannot be measured using standard cross-sectional data, including the entry and exit of firms and the sorting of workers across firms, are important sources of changes in earnings distributions over time.

Our results also suggest that the dynamics driving changes in earnings inequality are heterogeneous across industries.

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