Unemployment Insurance: Wage Dynamics and Inequality Over the Life Cycle

Paul Bingley, Lorenzo Cappellari, Niels Westergård-Nielsen

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We investigate the relationship between life cycle wages and individual membership of unemployment insurance schemes in Denmark. We separate permanent from transitory wages and characterise them using membership of unemployment insurance funds. We find that unemployment insurance is associated with lower wage growth heterogeneity over the life cycle and greater wage instability, changing the nature of wage inequality from permanent to transitory. Although we are in general unable to formally test for moral hazard against adverse selection into unemployment insurance, robustness checks suggest that moral hazard is the relevant interpretation.
We investigate the relationship between life cycle wages and individual membership of unemployment insurance schemes in Denmark. We separate permanent from transitory wages and characterise them using membership of unemployment insurance funds. We find that unemployment insurance is associated with lower wage growth heterogeneity over the life cycle and greater wage instability, changing the nature of wage inequality from permanent to transitory. Although we are in general unable to formally test for moral hazard against adverse selection into unemployment insurance, robustness checks suggest that moral hazard is the relevant interpretation.
LanguageEnglish
JournalEconomic Journal
Volume123
Issue number568
Pages341-372
ISSN0013-0133
DOIs
StatePublished - 2013
Externally publishedYes

Cite this

Bingley, Paul ; Cappellari, Lorenzo ; Westergård-Nielsen, Niels. / Unemployment Insurance : Wage Dynamics and Inequality Over the Life Cycle. In: Economic Journal. 2013 ; Vol. 123, No. 568. pp. 341-372
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Unemployment Insurance : Wage Dynamics and Inequality Over the Life Cycle. / Bingley, Paul; Cappellari, Lorenzo; Westergård-Nielsen, Niels.

In: Economic Journal, Vol. 123, No. 568, 2013, p. 341-372.

Research output: Contribution to journalJournal articleResearchpeer-review

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AB - We investigate the relationship between life cycle wages and individual membership of unemployment insurance schemes in Denmark. We separate permanent from transitory wages and characterise them using membership of unemployment insurance funds. We find that unemployment insurance is associated with lower wage growth heterogeneity over the life cycle and greater wage instability, changing the nature of wage inequality from permanent to transitory. Although we are in general unable to formally test for moral hazard against adverse selection into unemployment insurance, robustness checks suggest that moral hazard is the relevant interpretation.

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