IDEAS home Printed from https://ideas.repec.org/a/bla/jecrev/v66y2015i1p112-146.html
   My bibliography  Save this article

Earnings Dynamics and Profile Heterogeneity: Estimates from Japanese Panel Data

Author

Listed:
  • Masakatsu Okubo

Abstract

type="main"> The recent empirical work on earnings processes using US panel data finds that ignoring heterogeneity in earnings profiles among individuals leads to an upward bias in the autoregressive parameter of earnings shocks. It then argues that the existing assumptions in incomplete markets and heterogeneous-agent models, almost all of which require highly persistent earnings shocks and no individual-specific and group-specific differences in earnings growth rates, may be inappropriate. This paper investigates the applicability of this US data-based debate to other developed countries by using a panel of Japanese male earnings. The results indicate that it is possible to corroborate the recent US arguments, despite some differences in the estimates.

Suggested Citation

  • Masakatsu Okubo, 2015. "Earnings Dynamics and Profile Heterogeneity: Estimates from Japanese Panel Data," The Japanese Economic Review, Japanese Economic Association, vol. 66(1), pages 112-146, March.
    • Handle: RePEc:bla:jecrev:v:66:y:2015:i:1:p:112-146
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/jere.12045
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Toshiaki Tachibanaki, 2005. "Confronting Income Inequality in Japan: A Comparative Analysis of Causes, Consequences, and Reform," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201585, December.
    2. Fatih Guvenen, 2009. "An Empirical Investigation of Labor Income Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 58-79, January.
    3. Lillard, Lee A & Willis, Robert J, 1978. "Dynamic Aspects of Earning Mobility," Econometrica, Econometric Society, vol. 46(5), pages 985-1012, September.
    4. Altonji, Joseph G & Segal, Lewis M, 1996. "Small-Sample Bias in GMM Estimation of Covariance Structures," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(3), pages 353-366, July.
    5. Martin Browning & Mette Ejrnæs & Javier Alvarez, 2010. "Modelling Income Processes with Lots of Heterogeneity," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1353-1381.
    6. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009. "Quantitative Macroeconomics with Heterogeneous Households," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 319-354, May.
    7. Joseph G. Altonji & Anthony A. Smith Jr. & Ivan Vidangos, 2013. "Modeling Earnings Dynamics," Econometrica, Econometric Society, vol. 81(4), pages 1395-1454, July.
    8. Orazio Attanasio & Hamish Low & Virginia Sánchez-Marcos, 2008. "Explaining Changes in Female Labor Supply in a Life-Cycle Model," American Economic Review, American Economic Association, vol. 98(4), pages 1517-1552, September.
    9. Michael Baker & Gary Solon, 2003. "Earnings Dynamics and Inequality among Canadian Men, 1976-1992: Evidence from Longitudinal Income Tax Records," Journal of Labor Economics, University of Chicago Press, vol. 21(2), pages 267-288, April.
    10. Ono, Hiroshi, 2010. "Lifetime employment in Japan: Concepts and measurements," Journal of the Japanese and International Economies, Elsevier, vol. 24(1), pages 1-27, March.
    11. Storesletten, Kjetil & Telmer, Christopher I. & Yaron, Amir, 2004. "Consumption and risk sharing over the life cycle," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 609-633, April.
    12. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    13. Chiaki Moriguchi & Emmanuel Saez, 2008. "The Evolution of Income Concentration in Japan, 1886-2005: Evidence from Income Tax Statistics," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 713-734, November.
    14. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
    15. Haider, Steven J, 2001. "Earnings Instability and Earnings Inequality of Males in the United States: 1967-1991," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 799-836, October.
    16. Meghir, Costas & Pistaferri, Luigi, 2011. "Earnings, Consumption and Life Cycle Choices," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 9, pages 773-854, Elsevier.
    17. Yukiko Abe, 2000. "A Comparison of Wage Structures in the United States and Japan: Results from Cell Mean Regressions," The Japanese Economic Review, Japanese Economic Association, vol. 51(2), pages 252-267, June.
    18. Hubbard, R. Glenn & Skinner, Jonathan & Zeldes, Stephen P., 1994. "The importance of precautionary motives in explaining individual and aggregate saving," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 59-125, June.
    19. Deaton, Angus & Paxson, Christina, 1994. "Intertemporal Choice and Inequality," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 437-467, June.
    20. Carroll, Christopher D. & Samwick, Andrew A., 1997. "The nature of precautionary wealth," Journal of Monetary Economics, Elsevier, vol. 40(1), pages 41-71, September.
    21. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
    22. Fatih Guvenen, 2007. "Learning Your Earning: Are Labor Income Shocks Really Very Persistent?," American Economic Review, American Economic Association, vol. 97(3), pages 687-712, June.
    23. Baker, Michael, 1997. "Growth-Rate Heterogeneity and the Covariance Structure of Life-Cycle Earnings," Journal of Labor Economics, University of Chicago Press, vol. 15(2), pages 338-375, April.
    24. Robert E. Lucas Jr., 2003. "Macroeconomic Priorities," American Economic Review, American Economic Association, vol. 93(1), pages 1-14, March.
    25. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
    26. Hause, John C, 1980. "The Fine Structure of Earnings and the On-the-Job Training Hypothesis," Econometrica, Econometric Society, vol. 48(4), pages 1013-1029, May.
    27. Costas Meghir & Luigi Pistaferri, 2004. "Income Variance Dynamics and Heterogeneity," Econometrica, Econometric Society, vol. 72(1), pages 1-32, January.
    28. Toshiaki Tachibanaki, 2006. "Inequality And Poverty In Japan," The Japanese Economic Review, Japanese Economic Association, vol. 57(1), pages 1-27, March.
    29. Hashimoto, Masanori & Raisian, John, 1985. "Employment Tenure and Earnings Profiles in Japan and the United States," American Economic Review, American Economic Association, vol. 75(4), pages 721-735, September.
    30. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2004. "Cyclical Dynamics in Idiosyncratic Labor Market Risk," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 695-717, June.
    31. Hashimoto, Masanori & Raisian, John, 1992. "Employment Tenure and Earnings Profiles in Japan and the United States: Reply," American Economic Review, American Economic Association, vol. 82(1), pages 346-354, March.
    32. Kambayashi, Ryo & Kato, Takao, 2011. "Long-term Employment and Job Security over the Last Twenty-Five Years: A Comparative Study of Japan and the U.S," IZA Discussion Papers 6183, Institute of Labor Economics (IZA).
    33. Topel, Robert H, 1991. "Specific Capital, Mobility, and Wages: Wages Rise with Job Seniority," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 145-176, February.
    34. Mincer, Jacob & Higuchi, Yoshio, 1988. "Wage structures and labor turnover in the United States and Japan," Journal of the Japanese and International Economies, Elsevier, vol. 2(2), pages 97-133, June.
    35. Robert A. Moffitt & Peter Gottschalk, 2002. "Trends in the Transitory Variance of Earnings in the United States," Economic Journal, Royal Economic Society, vol. 112(478), pages 68-73, March.
    36. Clark, Robert L & Ogawa, Naohiro, 1992. "Employment Tenure and Earnings Profiles in Japan and the United States: Comment," American Economic Review, American Economic Association, vol. 82(1), pages 336-345, March.
    37. Abowd, John M & Card, David, 1989. "On the Covariance Structure of Earnings and Hours Changes," Econometrica, Econometric Society, vol. 57(2), pages 411-445, March.
    38. Abe, Naohito & Yamada, Tomoaki, 2009. "Nonlinear income variance profiles and consumption inequality over the life cycle," Journal of the Japanese and International Economies, Elsevier, vol. 23(3), pages 344-366, September.
    39. Fumio OHTAKE, 2008. "Inequality in Japan," Asian Economic Policy Review, Japan Center for Economic Research, vol. 3(1), pages 87-109, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. In Choi, 2019. "Unit Root Tests for Dependent Micropanels," The Japanese Economic Review, Springer, vol. 70(2), pages 145-167, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ivan Vidangos, 2009. "Household welfare, precautionary saving, and social insurance under multiple sources of risk," Finance and Economics Discussion Series 2009-14, Board of Governors of the Federal Reserve System (U.S.).
    2. Fatih Guvenen, 2009. "An Empirical Investigation of Labor Income Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 58-79, January.
    3. Joseph G. Altonji & Anthony A. Smith Jr. & Ivan Vidangos, 2013. "Modeling Earnings Dynamics," Econometrica, Econometric Society, vol. 81(4), pages 1395-1454, July.
    4. Yang, Guanyi, 2018. "Endogenous Skills and Labor Income Inequality," MPRA Paper 89638, University Library of Munich, Germany.
    5. Fatih Guvenen, 2007. "Learning Your Earning: Are Labor Income Shocks Really Very Persistent?," American Economic Review, American Economic Association, vol. 97(3), pages 687-712, June.
    6. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2009. "Quantitative Macroeconomics with Heterogeneous Households," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 319-354, May.
    7. Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2014. "Consumption and Labor Supply with Partial Insurance: An Analytical Framework," American Economic Review, American Economic Association, vol. 104(7), pages 2075-2126, July.
    8. Gustavsson, Magnus & Österholm, Pär, 2014. "Does the labor-income process contain a unit root? Evidence from individual-specific time series," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 152-167.
    9. Robert Moffitt & Peter Gottschalk, 2008. "Trends in the Transitory Variance of Male Earnings in the U.S., 1970-2004," Boston College Working Papers in Economics 697, Boston College Department of Economics.
    10. 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.
    11. Joseph Altonji & Disa Hynsjo & Ivan Vidangos, 2023. "Individual Earnings and Family Income: Dynamics and Distribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 49, pages 225-250, July.
    12. Fatih Karahan & Serdar Ozkan, 2013. "On the Persistence of Income Shocks over the Life Cycle: Evidence, Theory, and Implications," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 452-476, July.
    13. Ivan Vidangos, 2009. "Fluctuations in individual labor income: a panel VAR analysis," Finance and Economics Discussion Series 2009-09, Board of Governors of the Federal Reserve System (U.S.).
    14. Robert Moffitt & Sisi Zhang, 2018. "The PSID and Income Volatility: Its Record of Seminal Research and Some New Findings," The ANNALS of the American Academy of Political and Social Science, , vol. 680(1), pages 48-81, November.
    15. Dmytro Hryshko, 2012. "Labor income profiles are not heterogeneous: Evidence from income growth rates," Quantitative Economics, Econometric Society, vol. 3(2), pages 177-209, July.
    16. Otto Kässi, 2014. "Earnings dynamics of men and women in Finland: permanent inequality versus earnings instability," Empirical Economics, Springer, vol. 46(2), pages 451-477, March.
    17. Greg Kaplan & Giovanni L. Violante, 2010. "How Much Consumption Insurance beyond Self-Insurance?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(4), pages 53-87, October.
    18. Meghir, Costas & Pistaferri, Luigi, 2011. "Earnings, Consumption and Life Cycle Choices," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 9, pages 773-854, Elsevier.
    19. Owen Freestone, 2018. "The Drivers of Life‐Cycle Wage Inequality in Australia," The Economic Record, The Economic Society of Australia, vol. 94(307), pages 424-444, December.
    20. Giesecke, Matthias & Bönke, Timm & Lüthen, Holger, 2011. "The Dynamics of Earnings in Germany: Evidence from Social Security Records," VfS Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48692, Verein für Socialpolitik / German Economic Association.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jecrev:v:66:y:2015:i:1:p:112-146. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/jeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.