DP15083 Heterogeneity and Wage Inequalities over the Life Cycle

Author(s): Thierry Magnac, Sébastien Roux
Publication Date: July 2020
Keyword(s): Human capital investment, inequality, post-schooling wage growth, random and fixed effects, wage dynamics
JEL(s): C33, D91, I24, J24, J31
Programme Areas: Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15083

Using data on French male wage employees observed over 30 years, we estimate individual-specific parameters of a human capital investment model by random and fixed effect methods. Individual wage profiles are described by a level, a slope and a curvature. Among the salient results, cross-section inequalities exceed life-cycle inequalities by a factor increasing from 20% to 80%, and permanent heterogeneity explains between 60 and 90% of the variance of wages. Multidimensional heterogeneity, and in particular the heterogeneous curvature of individual profiles, is found to be necessary to properly describe the stochastic process of wages over the life-cycle.