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Aggregate Earnings Inequality in Europe: Permanent Differences or Transitory Fluctuations?

By Aedin Doris, Donal O'Neill and Olive Sweetman

Abstract

This paper examines the relationship between aggregate inequality and its underlying components for a number of European countries. We use a well established GMM approach to separate the permanent component from the transitory component of earnings inequality. Our results show that three quarters of the observed cross-country differences in aggregate inequality in Europe is accounted for by differences in permanent inequality, reflecting differences in individual characteristics that persist throughout the life-cycle.Permanent Inequality, Transitory Inequality, Generalized Method of Moments, Covariance Structure of Earnings

OAI identifier: oai:RePEc:may:mayecw:n211-10.pdf

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