The Cycle of Earnings Inequality: Evidence from Spanish Social Security Data
We thank Jorge de la Roca for his help with the data in early stages of this project. We also thank Samuel Bentolila, David Dorn, Cristina Fernández, Luis Garicano, Aitor Lacuesta, Gerard Llobet, Claudio Michelacci, Josep Pijoan-Mas, Diego Puga, Ernesto Villanueva, Ken Yamada, two anonymous referees, the editor of the article and seminar participants at various places for useful comments. Support from the European Research Council/ ERC grant agreement no. 0263107 is gratefully acknowledged. All remaining errors are our own. Data sets and programmes are available online to any researcher for purposes of replication. The opinions and analyses are the responsibility of the authors and, therefore, do not necessarily coincide with those of the Bank of Spain or the Eurosystem.
We use detailed information from social security records to document the evolution of male earnings inequality and employment in Spain from 1988 to 2010. We find that inequality was strongly countercyclical: it increased around the 1993 recession, experienced a substantial decrease during the 1997–2007 expansion and then a sharp increase during the recent recession. This evolution went in parallel with the cyclicality of employment in the lower middle part of the wage distribution. Our findings highlight the importance of the housing boom and bust in this evolution, suggesting that demand shocks in the construction sector had large effects on aggregate labour market outcomes.