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Inequality in Lifetime Earnings, 1986-2012

Working Paper 2021-579

Abstract

We estimate yearly inequality in anticipated lifetime earnings—a lower bound on “true” inequality that would apply if earnings could be transferred freely over time—using a two-stage approach that first estimates the lifetime earnings of males born between 1942-87, from PSID data to 2018; and then measures inequality in these lifetime earnings estimates among males aged 25-59 in each year between 1986 and 2012. Comparing it to conventionally measured inequality in annual earnings, we find that yearly variances of log lifetime earnings are, on average, less than half the variances of log annual earnings, and much more stable, rising by only 11 percent throughout the period, where inequality in annual earnings increased by 46 percent after 1998, indicating a corresponding increase in intertemporal mobility. This dynamic pattern varies markedly from inequality in lifetime earnings measured within ten-year cohort-groups, which first rose by 40 percent from the earliest, 1942-51 cohort-group to the 1958-67 cohort-group, then declined by 26 percent for the youngest, 1978-87 cohort-group.

Authors: Moshe Justman, Hadas Stiassnie.

Keywords: Earnings inequality, lifetime earnings, earnings volatility, PSID
JEL: D31, I32