The Impact of Macroeconomic Conditions on the Instability and Long-Run Inequality of Workers’ Earnings in Canada

Posted: 5 Jul 2010

See all articles by Charles M. Beach

Charles M. Beach

Queen's University - Department of Economics

Ross Finnie

Statistics Canada - Business and Labour Market Analysis Division; Queen's University - School of Policy Studies

David M. Gray

University of Ottawa - Department of Economics

Date Written: June 15, 2005

Abstract

This paper examines the variability of workers’ earnings in Canada over the period 1982 1997. Using a large panel of tax file data, we decompose total variation in earnings across workers and time into a long-run inequality component between workers and an average earnings instability component over time for workers. We find an increase in earnings variability between 1982 89 and 1990 97 that is largely confined to men and largely driven by widening long-run earnings inequality. Second, the pattern of unemployment rate and GDP growth rate effects on these variance components is not consistent with conventional explanations and is suggestive of an alternative paradigm of how economic growth over this period widens long-run earnings inequality. Third, when unemployment rate and GDP growth rate effects are considered jointly, macroeconomic improvement is found to reduce the overall variability of earnings as the reduction in earnings instability outweighs the widening of long-run earnings inequality.

JEL Classification: J30, J31

Suggested Citation

Beach, Charles M. and Finnie, Ross and Gray, David M., The Impact of Macroeconomic Conditions on the Instability and Long-Run Inequality of Workers’ Earnings in Canada (June 15, 2005). Relations Industrielles/Industrial Relations, Vol. 60, No. 2, 2005, Available at SSRN: https://ssrn.com/abstract=1634943

Charles M. Beach (Contact Author)

Queen's University - Department of Economics ( email )

99 University Avenue
Kingston K7L 3N6, Ontario
Canada K7L 3N6
613-533-2278 (Phone)

Ross Finnie

Statistics Canada - Business and Labour Market Analysis Division ( email )

24th Floor - R.H. Coats Building
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Ottawa, Ontario K1A 0T6
Canada

Queen's University - School of Policy Studies ( email )

Kingston, Ontario K7L 3N6 K7L 3N6
Canada

David M. Gray

University of Ottawa - Department of Economics ( email )

200 Wilbrod Street
P.O. Box 450, Station A
Ottawa, Ontario K1N 6N5
Canada

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