roiw_406 572..596 LONG-RUN INEQUALITY AND SHORT-RUN INSTABILITY OF MEN’S AND WOMEN’S EARNINGS IN CANADA

This paper examines the variability of workers ’ earnings in Canada over the period 1982–2006. We decompose the total variance of workers ’ earnings into a ‘permanent ’ component between workers and a ‘transitory ’ earnings instability component over time for given workers. We then investigate the statistical relationships between these components and indicators for the business cycle. The most marked change in earnings variances in Canada since 1982 is the general rise in total earnings variance, which is essentially driven by a quite dramatic rise in long-run earnings inequality. The patterns across age categories of the two variance components are almost opposite. Long-run earnings inequality generally rises with age, but earnings instability is seen to generally decline with age, so that earnings instability is markedly highest among entry age workers. Unemployment rate effects are positive on almost all variance measures, while higher unemployment is associated with widened long-run earnings differentials and greater short-run earnings instability. 1