Earnings dynamics and inequality in the EU, 1994-2001

Relying on a consistent cross-national comparative data set – ECHP, we explore the extent to which changes in cross-sectional earnings inequality in 14 EU countries over the period 1994 and 2001 reflect an increase in lifetime earnings inequality or in earnings instability. Equally weighted minimum distance methods are used to estimate the covariance structure of earnings and decompose earnings inequality into its permanent and transitory components. The increase in inequality reflects an increase in lifetime earnings inequality in four countries, and in earnings instability in two countries. Decreases in inequality reflect decreases in earnings instability in four countries, in lifetime inequality in two, and in both in rest.