The Drivers of Life-Cycle Wage Inequality in Australia

Owen Freestone*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

Why does wage inequality rise with age? Using panel data on male wages, we explore the relative importance of unobserved worker heterogeneity versus random wage shocks in explaining this life-cycle trend in Australia. While we find significant heterogeneity in wage levels (via differences in starting wages), we find no evidence of systematic heterogeneity in wage growth. Instead, highly persistent wage shocks are found to account entirely for the rise in wage inequality with age. We also find evidence that the upward trend in wage inequality since the early 2000s reflects an increase in permanent rather than transitory wage inequality.

Original languageEnglish
Pages (from-to)424-444
Number of pages21
JournalEconomic Record
Volume94
Issue number307
DOIs
Publication statusPublished - Dec 2018

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