The impact of macroeconomic conditions on the instability and long-run inequality of worker's earnings in Canada

Indeed, strictly cross-sectional analyses have shown that earnings inequality increased significantly in Canada in the 1990s.1 This paper examines the variability of workers’ earnings in Canada over the period 1982-1997 and how earnings variability has varied in terms of the macroeconomic indicators, the unemployment rate and the real GDP growth rate, over this period. [...] The point of departure for the present paper involves an econometric analysis of the sensitivity of the variance components to the business cycle based on the indicators of the unemployment rate and the growth in real GDP. [...] The numbers of records in the full LAD file and the effects of the various exclusion criteria going from the full LAD file to the final BES, and then from the BES to the NES for each of the sample years are listed in Table A1 of Beach, Finnie and Gray (2001). [...] The BES samples tend to be about twice as large as the NES samples, indicating that many of the former are non-continuous labour market participants.6 The first sub-period spanning the interval 1982-1989 commences near the end of the sharp 1980- 82 recession and then includes much of the subsequent expansion, whereas the second period (1990-1997) includes the trough of the 1990-92 recession and so [...] For the presentation of the results, we express the calculations in terms of levels as well as in terms relative to the sum of the permanent and the transitory components.