Unemployment, Uncertainty and Wage Inequality: Evidence from the Netherlands, 1986-2008

Irma Mooi-Reci, University of Melbourne
Tim Futing Liao, University of Illinois at Urbana-Champaign

Although unemployment plays a central role in the emergence of labor market disparities, rarely any studies have linked its occurrence with the rising trends in wage or income disparities since the 1980s. This study addresses this gap by assessing how one’s unemployment history can influence simultaneously between –and within group wage disparity. Hypotheses derived from labor market theories are tested using comprehensive longitudinal data from the Dutch OSA Labor Supply Panel spanning over 1986–2008. Results from the analysis using the newly developed variance function panel regression model demonstrate that unemployment (i) penalizes workers’ wages in both the mean and conditional variance and (ii) explains about half to two-thirds of the rise in the wage inequality respectively for respectively men and women in the Netherlands. Wage disparities vary considerably across gender with men’s wage dispersion directly influenced by unemployment stigma and that of women contingent upon the type of mismatching and their employment contract.