Wage Mobility: A Functional Copula Approach

The study of wage dynamics over time is more insightful than the analysis of point-in-time inequality measures. In policy-making, indeed, low wage careers instead of low-wage jobs should be at the center of the debate on long-term wage inequality. Many previous studies tried to estimate the degree of wage mobility within an economy; however, they rely on some quite restrictive modelling assumptions. The aim of this paper is to develop a new semi-nonparametric copula model in order to describe more accurately the wage dynamics and its dependence on the worker’s past position in the distribution and on some individual characteristics. We apply this functional copula model to US data. We find that positional persistence at the bottom of the distribution is high for workers with a low education level, i.e. for those individuals we find evidence of the existence of a ”low-wage trap”.