Four Decades of Canadian Earnings Inequality and Dynamics Across Workers and Firms

“Earnings inequality” refers to how individual earnings are distributed unevenly across workers at a given point in time. “Earnings dynamics” reflects how a change in individual earnings from one period to another is distributed.

In this paper, we explore how inequality and the dynamics of individual earnings have evolved over time in Canada. Understanding earnings inequality and dynamics requires large datasets that allow us to analyze what happens to the earnings of various groups of workers. Linking individuals to their employers can also be helpful if where people work matters for their earnings.

We use Canadian matched employer-employee data that cover all tax filers and their employers. Over the past four decades, the inequality and dynamics of earnings have been stable in the long run; however, they have varied considerably over the business cycle. We find that the employers’ size and growth play an important role in determining their employees’ level and growth of earnings.