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Improving The Measurement Of Earnings Dynamics

Author

Listed:
  • Moira Daly
  • Dmytro Hryshko
  • Iourii Manovskii
Abstract
Empirically, earnings at the start or end of earnings spells are lower and more volatile than in the interior of earnings histories, reflecting mainly the effects of working less than the full year. Ignoring these properties leads to a mismeasurement of the permanent and transitory shock variances and induces the large and widely documented divergence in the estimates of those variances based on fitting the earnings moments in levels or growth rates. Accounting for these effects enables more accurate analysis using quantitative models with permanent and transitory earnings risk and improves empirical estimates of consumption insurance against permanent earnings shocks.

Suggested Citation

  • Moira Daly & Dmytro Hryshko & Iourii Manovskii, 2022. "Improving The Measurement Of Earnings Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(1), pages 95-124, February.
    • Handle: RePEc:wly:iecrev:v:63:y:2022:i:1:p:95-124
    DOI: 10.1111/iere.12534
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    Cited by:

    1. Hryshko, Dmytro & Juhn, Chinhui & McCue, Kristin, 2017. "Trends in earnings inequality and earnings instability among U.S. couples: How important is assortative matching?," Labour Economics, Elsevier, vol. 48(C), pages 168-182.
    2. John Carter Braxton & Kyle F. Herkenhoff & Jonathan Rothbaum & Lawrence Schmidt, 2021. "Changing Income Risk across the US Skill Distribution: Evidence from a Generalized Kalman Filter," Opportunity and Inclusive Growth Institute Working Papers 55, Federal Reserve Bank of Minneapolis.
    3. Gustafsson, Johan & Holmberg, Johan, 2023. "Permanent and transitory earnings dynamics and lifetime income inequality in Sweden," Labour Economics, Elsevier, vol. 85(C).
    4. Christopher Busch & Alexander Ludwig, 2024. "Higher‐Order Income Risk Over The Business Cycle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(3), pages 1105-1131, August.
    5. Hryshko, Dmytro & Manovskii, Iourii, 2022. "How much consumption insurance in the U.S.?," Journal of Monetary Economics, Elsevier, vol. 130(C), pages 17-33.
    6. Fatih Guvenen & Fatih Karahan & Serdar Ozkan & Jae Song, 2021. "What Do Data on Millions of U.S. Workers Reveal About Lifecycle Earnings Dynamics?," Econometrica, Econometric Society, vol. 89(5), pages 2303-2339, September.
    7. Kuhn, Moritz & Ploj, Gasper, 2020. "Job Stability, Earnings Dynamics, and Life-Cycle Savings," IZA Discussion Papers 13887, Institute of Labor Economics (IZA).
    8. d’Astous, Philippe & Shore, Stephen H., 2024. "Programs of study and earnings dynamics," Labour Economics, Elsevier, vol. 88(C).
    9. Gustafsson, Johan & Holmberg, Johan, 2022. "Permanent and transitory earnings dynamics and lifetime income inequality in Sweden," Umeå Economic Studies 1005, Umeå University, Department of Economics.

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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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