Type | Working Paper - ACEIR Working Paper Series |
Title | Earnings inequality over the life-course in South Africa |
Author(s) | |
Volume | No. 4 |
Publication (Day/Month/Year) | 2020 |
Page numbers | 1-30 |
URL | https://aceir.uct.ac.za/sites/default/files/content_migration/aceir_uct_ac_za/1639/files/WP4_Earnings inequality over life-course in South Africa.pdf |
Abstract | Earnings inequality is usually calculated from a distribution which is measured at a point in time. However, because we typically observe a positive age-earnings profile, a part of cross-sectional inequality is explained by age-related differences in earnings across age cohorts. When inequality is computed using earnings measured over the lifetime, these age-specific differences are averaged out. However, there are also factors that may drive up inequality in earnings measured over time relative to cross-sectional inequality – for instance, low cross-sectional earnings are likely to be correlated with low wage growth and longer spells of unemployment, thereby compounding inequality. Using South African data, the authors investigate how these dynamic processes act simultaneously but over different time scales to both moderate and exacerbate inequality over time. Because the available panel data in South Africa spans only nine years, straightforwardly constructing a measure of lifetime earnings is not possible. The researchers circumnavigate this challenge by constructing a synthetic lifetime panel by stitching together relevantly similar individuals across successive age cohorts. They use this synthetic panel to compute inequality of lifetime earnings and compare this to inequality of earnings measured over the medium term (two to nine years), and to inequality measured at a point in time. The authors find that inequality of lifetime earnings, which reflects the effect of the age/earning relationship, is lower than inequality of contemporaneous earnings. However, inequality of earnings measured over two to nine years, which is more sensitive to inequalities in short-term employment dynamics, is substantially higher than point-in-time estimates. |