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Modelling earnings dynamics and inequality: foreign workers and inequality trends in Luxembourg, 1988–2009

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This article is Open Access under the terms of the Creative Commons CC BY-NC-ND licence.

The paper exploits large‐scale administrative data to analyse trends in male earnings inequality in Luxembourg during 20 years of rapid economic growth, industrial redevelopment and massive inflow of foreign workers. A detailed error components model is estimated to identify persistent and transitory components of (the trends of) log‐earnings variance and to disentangle the contributions to it of native, immigrant and cross‐border workers. The model is flexible and allows for a high degree of individual, age, time and cohort heterogeneity. We observe a surprising stability in overall earnings inequality as a result of more complex underlying changes, with marked increases in persistent inequality (except among natives), a growing contribution of foreigners and a decrease in earnings instability (primarily for natives).
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Keywords: Administrative data; Cross‐border and immigrant workers; Earnings dynamics; Minimum distance estimation; Persistent inequality; Transitory inequality

Document Type: Research Article

Publication date: 01 February 2018

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