Denisa Maria Sologon

Earnings Dynamics and Inequality in EU, 1994-2001

This paper uses ECHP for 14 EU countries to explore the dynamic structure of individual earnings and the extent to which changes in cross-sectional earnings inequality reflect transitory or permanent components of individual lifecycle earnings variation. Increases in inequality reflect increases in permanent differentials in four countries and increases in both components in two. Decreases in inequality reflect decreases in transitory differentials in four countries, in permanent differentials in two and in both components in rest. In general, increases in inequality are accompanied by decreases in mobility, whereas only in three countries the increase in mobility is determined by the decrease in inequality.

Shaping Earnings Insecurity: Labor Market Policy and Institutional Factors

We examine the relationship between earnings insecurity, labor market policies/institutions, product market regulation, and macroeconomic shocks across Europe in the 1990s by means of the non-linear least squares method. Earnings insecurity is proxied by transitory variability in earnings, which captures transitory earnings shocks, and by earnings volatility, which captures both permanent and transitory earnings shocks. Our results suggest that corporative bargaining systems, generous unemployment benefits, and deregulated product markets reduce the impact of macroeconomic shocks on transitory variability in earnings and earnings volatility, while a stronger labor protection legislation reduces the impact of macroeconomic shocks on earnings volatility. Several institutional mixes have the potential to reduce transitory variability, for example coupling a high corporatism with a high unionization, coupling protection mechanisms with activation policies, incorporating a trade-off between the generosity of unemployment benefits and the strictness of labor market regulation, and coupling product market deregulation with deregulated labor markets or with a high unionization. Two valuable lessons are that contextual interaction effects are important for understanding the influence of particular policies and institutions on earnings insecurity and that there is no one-size-fits all policy package for reducing the impact of the business cycle on transitory variability and volatility.

Earnings Dynamics, Foreign Workers and the Stability of Inequality Trends in Luxembourg 1988-2009

This paper exploits a large-scale administrative dataset to document trends in male earnings inequality in Luxembourg over twenty years of rapid economic growth. A detailed error components model is estimated to identify persistent and transitory components of log hourly earnings variance. Given the importance of foreign labour in Luxembourg, models and inequality trends are distinguished between native, immigrant and cross-border workers. Surprisingly, we observe only a modest increase in overall hourly earnings inequality between 1988 and 2009. This apparent stability is however the net result of somewhat more complex underlying changes, with marked increases in persistent inequality (except among native workers), growing contribution of foreign workers, divergence across subgroups, and a decrease in earnings instability (primarily for native workers). Overall, we interpret these results as showing a surprising stability in the face of the industrial re-development, the changes in the size and structure of employment, and the fast growth that characterized the countrys economy in this period. Such results possibly hint at the role of strict labour market regulations and collective bargaining institutions in holding back earnings inequality, at least in a period of fast economic growth and soaring demand for labour.

A Continuous Labour Supply Model in Microsimulation: A Life-cycle Modelling Approach with Heterogeneity and Uncertainty Extension

This paper advances a structural inter-temporal model of labour supply that is able to simulate the dynamics of labour supply in a continuous setting and addresses two main drawbacks of most existing models. The first limitation is the inability to incorporate individual heterogeneity as every agent is sharing the same parameters of the utility function. The second one is the strong assumption that individuals make decisions in a world of perfect certainty. Essentially, this paper offers an extension of marginal-utility-of-wealth-constant labour supply functions known as “Frisch functions” under certainty and uncertainty with homogenous and heterogeneous preferences. The lifetime models based on the fixed effect vector decomposition yield the most stable simulation results, under both certain and uncertain future wage assumptions. Due to its improved accuracy and stability, this lifetime labour supply model is particularly suitable for enhancing the performance of the life cycle simulation models, thus providing a better reference for policymaking.