The Covariance Structure of Earnings in Great Britain, 1991–1999

I analyse the dynamic structure of earnings in Great Britain for the period 1991–99 by decomposing the earnings covariance structure into its permanent and transitory components. According to the British Household Panel Study data, earnings inequality of male full‐time employees increases over the 1990s. However, earnings mobility may have also increased. That is, for this period earnings persistence falls. This evidence is at odds with previous literature on earnings dynamics both for Britain and other OECD countries. Moreover, human capital and job related characteristics account for nearly all persistent earnings differences and the transitory component is highly persistent.