Earnings, Cohort Effects, and Inter-Generational Inequality: Evidence From the Luxembourg Income Study

Abstract

Research suggests that inequalities between generations are most pronounced in the conservative European welfare states. However, it is likely that across all advanced capitalist societies superior earnings opportunities and steady employment are pursued at a later age due to secular labor market trends. In this paper, I examine the variation in generational inequalities across different regimes using data from the Luxembourg Income Study (LIS). The repeated cross-sectional data allow me to trace the generational changes in income for eight countries, using both Age Period Cohort (APC) and synthetic cohort models. My results suggest that for most countries, cohorts born after 1980 have experienced lower entry-level earning opportunities, relative to cohorts born between 1960 and 1980. However, synthetic cohort models suggest that while recent generations have suffered from successively worse entry positions, they appear to be “catching up,” which suggests that permanent “scarring effects” to lifetime earnings may not be inevitable.