Earnings Inequality and Earnings Mobility in Great Britain: Evidence from the BHPS, 1991-94

This paper draws on the first four waves of data of the British Household Panel Survey (BHPS) to analyse the statics and dynamics of the earnings distribution in the early nineties. Motivated by the wide range of concerns which mobility is viewed to serve, I analyse mobility under three complementary headings: (i) predictability or state dependence; (ii) movement; and (iii) welfare implications; and find that mobility is rather low. When mobility is modelled as a discrete stochastic process, earnings are best described by a second order Markov chain. This paper is part of my PhD thesis at the Institute for Social and Economic Research, University of Essex. I would like to thank Stephen Jenkins for his many and valuable comments and discussions. My thanks also to Frank Cowell and John Ermisch. The usual disclaimer applies. To get Figure 5, please contact the author. Correspondence to: Universitat Autònoma de Barcelona, Dept. Economia Aplicada, Edifici B, 08193 Bellaterra. Spain. E-mail: [email protected]