How green was my valley: Earnings differentials and the changing distribution of wages in Spain

The purpose of this paper is to examine the wage distribution in Spain, its evolution in recent years and the implications for increased wage dispersion. Accordingly, its attention focuses on the following issues: first, the paper investigates how personal, job and firm attributes affect the wages distribution and examine earnings differentials between and within groups of workers according to their individual and job characteristics throughout the conditional wage distribution; and second, the paper analyses whether the business cycle may influence the magnitude of these differentials.

Using administrative data from the Spanish Social Security and the Tax Administration National Agency, the paper estimates OLS and quantile regression (QR) models in order to assess the impact of personal, job and workplace attributes on between- and within-groups wage inequality.

Among other things, we find that, although the average wage has been increasing over time (until 2009), changes have not been uniform across the earnings distribution, making the dispersion fall during boom years but rise during downturn years. Furthermore, changes in the impacts of some characteristics (types of contract, education/qualifications, region and employer size) contributed to higher wage dispersion, while others (tenure) made the distribution more equal.

The analysis of the paper in novel in that it investigates whether wage differentials respond to the business cycle and what the source of that variation is. Moreover, it analyses wages differentials not only at the mean but also throughout the conditional earnings distribution, making it possible to assess the impact of these attributes on between- and within-groups wage inequality.