More unequal, but more mobile? Earnings inequality and mobility in OECD countries

an article by Andrea Garnero (Organisation for Economic Co-operation and Development (OECD), France; Institute for the Study of Labor (IZA), Germany; Université libre de Bruxelles (ULB, CEB), Belgium), Alexander Hijzen (Organisation for Economic Co-operation and Development (OECD), France; Institute for the Study of Labor (IZA), Germany) and Sébastien Martin (Organisation for Economic Co-operation and Development (OECD), France)  published in Labour Economics Volume 56 (January 2019)

Highlights

• On average across countries, only 20% of earnings inequality in a given year evens out over the life cycle as a result of mobility.
• The bulk of earnings inequality at a given time is permanent.
• Mobility and inequality are positively correlated across countries.
• International differences in life-time inequality tend to be less pronounced than inequality differences in a given year.

Abstract

This paper provides comprehensive cross-country evidence on the relationship between earnings inequality and intra-generational mobility by simulating individual earnings and employment trajectories using short panels for 24 OECD countries.

On average across countries, only 20% of earnings inequality in a given year evens out over the life cycle as a result of mobility. This suggests that the bulk of earnings inequality at a given time is permanent.

Moreover, mobility and inequality are positively correlated across countries, suggesting that international differences in life-time inequality tend to be less pronounced than inequality differences in a given year. The positive correlation is largely driven by employment mobility – movements between employment and unemployment – and most pronounced in the bottom of the distribution.

JEL classification:  E24, J30, J62, O57

Full text (PDF 10pp)

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