We thank Astrid Gamba, Luigi Pistaferri, three anonymous referees and seminar participants at EALE 2009 Tallinn Conference, ESPE 2010 Essen Conference, RES 2012 Cambridge Conference, the IZA Workshop on ‘Unemployment Insurance and Flexicurity’, the ZEW Workshop on ‘Flexibility in Heterogeneous Labour Markets’, the Italian Treasury, Wurzburg and BeNA Berlin for useful comments. Cappellari gratefully acknowledges the hospitality of the Centre for Corporate Performance in Aarhus and the Danish National Centre for Social Research in Copenhagen. The usual disclaimers apply.
Unemployment Insurance, Wage Dynamics and Inequality Over the Life Cycle
Article first published online: 26 APR 2013
© 2013 The Author(s). The Economic Journal © 2013 Royal Economic Society
The Economic Journal
Volume 123, Issue 568, pages 341–372, May 2013
How to Cite
Bingley, P., Cappellari, L. and Westergård-Nielsen, N. (2013), Unemployment Insurance, Wage Dynamics and Inequality Over the Life Cycle. The Economic Journal, 123: 341–372. doi: 10.1111/ecoj.12027
- Issue published online: 26 APR 2013
- Article first published online: 26 APR 2013
- Manuscript Accepted: 31 DEC 2012
- Manuscript Received: 14 FEB 2012
We investigate the relationship between life cycle wages and individual membership of unemployment insurance schemes in Denmark. We separate permanent from transitory wages and characterise them using membership of unemployment insurance funds. We find that unemployment insurance is associated with lower wage growth heterogeneity over the life cycle and greater wage instability, changing the nature of wage inequality from permanent to transitory. Although we are in general unable to formally test for moral hazard against adverse selection into unemployment insurance, robustness checks suggest that moral hazard is the relevant interpretation.