More unequal, but more mobile? Earnings inequality and mobility in OECD countries

Abstract

This paper provides comprehensive cross-country evidence on the relationship between earnings inequality and intra-generational mobility by simulating individual earnings and employment trajectories using short panels for 24 OECD countries. On average across countries, only 20% of earnings inequality in a given year evens out over the life cycle as a result of mobility. This suggests that the bulk of earnings inequality at a given time is permanent. Moreover, mobility and inequality are positively correlated across countries, suggesting that international differences in life-time inequality tend to be less pronounced than inequality differences in a given year. The positive correlation is largely driven by employment mobility – movements between employment and unemployment – and most pronounced in the bottom of the distribution.