Regional differences in initial labour market conditions and dynamics in lifetime income trajectories

Abstract

We use longitudinal register data from Sweden to study patterns and dynamics in lifetime income trajectories. We examine divergences in these income trajectories by local economic conditions at labour market entry, in combination with other factors such as gender, education level and socio-economic background. We cannot assume that these relationships are constant over the course of individuals’ working lives. Therefore, we use methods from functional data analysis, allowing for a time-varying relationship between income and the explanatory variables. Our results show a large degree of heterogeneity in how lifetime income trajectories develop for different subgroups. We find that, for men, entering the labour market in an urban area is associated with higher cumulative lifetime income, especially later in life. The exception is men with only primary education, for whom those starting their working lives in a large city have lower incomes on average. This divergence increases in size over time. Women who enter into a large urban labour market receive higher lifetime income at all education levels. This relationship is strongest for women with primary education but decreases in strength over time for these women.