Empirical Essays on Earnings Inequality

Sammanfattning: The thesis consists of four self-contained essays.Essay I decomposes the cross-sectional variance of male annual earnings in Sweden between 1960 and 1990 into permanent and transitory components and compares the results to the U.S. evidence. I find that the transitory variance in Sweden increased until the early 1970s, declined during the remainder of the decade and then rose again during the second half of the 1980s. The permanent variance declined over the whole sample period but its decrease was much more rapid up until the early 1980s than afterwards. Comparing the results for the transitory variance with evidence from the U.S. reveals sharp differences. Most notably, the transitory variance of U.S. earnings rose sharply from the mid 1970s to the mid 1980s. An important explanation for these dissimilarities appears to be labor market institutions. In particular, it is likely that centralized solidarity bargaining in Sweden imposed constraints on earnings instability during the 1970s and early 1980s. Essay II examines changes in the dispersion of permanent and transitory male annual earnings in Sweden between 1991 and 1999. I find that the variance of permanent earnings has increased over this period but that the variance of transitory earnings exhibits no clear trend. The results also show that young workers have the largest dispersion of transitory earnings. Results for wages indicate that increased permanent wage inequality is an important explanation for the increase in permanent earnings inequality.Essay III investigates changes in educational wage differentials in Sweden between 1992 and 2001 and places them in a longer-term perspective. The university wage premium has increased noticeably between 1992 and 2001 while the gymnasium wage premium has been constant. These results, together with previous research for earlier years, suggest that the university wage premium in Sweden has exhibited a clearly positive trend since the early 1980s whilst the gymnasium wage premium has been constant since the mid 1970s. Unlike the 1980s, relative supply changes do not appear to have been responsible for the rise in the university wage premium over the most recent decade.Essay IV (with Per-Anders Edin) investigates the role of skill depreciation in the relationship between work interruptions and subsequent wages. Using a unique longitudinal dataset, the Swedish part of the International Adult Literacy Survey, we are able to analyze changes in literacy skills for individuals as a function of time out of work. In general, we find statistically strong evidence on a negative relationship between work interruptions and skills. Our analysis suggests that depreciation of general (literacy) skills is economically significant. Our estimates imply that a full year of non-employment is associated with skill losses that are equivalent to moving 5 percentiles down the skill distribution.