Dynamics of the earnings distribution in Canada

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The central objective of this paper is to make use of the Longitudinal Administrative Databank drawn from Canadian personal income tax files to study the dynamics of earnings in Canada during 1982-94 and to estimate an econometric model for individuals' transitions up and down the quintiles of the entire earnings distribution. Upward and downward transitions give rise to spells of elapsed time spent in an earnings quintile, which are analyzed using a hazard approach. Three specific questions are addressed: the conditional probability of moving up or down the earnings distribution, given an elapsed duration in the current earnings quintile, and whether there are any duration dependent effects; the primary determinants of earnings mobility and the effects of specific explanatory variables such as geographic region, age, sex, language, and stage of the business cycle; and whether the likelihood of upward mobility has changed between the cyclically similar periods of 1982-84 and 1992-94.

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