Earnings dynamics over the life cycle: New evidence for New Zealand

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Abstract
This paper examines the dynamics of earnings over the life cycle of males and females in New Zealand, using a special data set compiled by the Inland Revenue Department. It is found that males and females display “regression towards the mean”, although the extent of this is greater in the younger and older age groups. For males there is some negative serial correlation in year to year relative earnings changes. The implications for the dispersion of earnings over the life cycle are examined. The variation in mean log‐earnings over the life cycle is also examined, using quadratic “age effects” and linear “time effects” for males, and cubic “age effects” for females. A lifetime earnings simulation model is constructed for males, and is used to examine the inequality of lifetime earnings for comparison with inequality in a single year.

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