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Trends in the Variances of Permanent and Transitory Earnings in the U.S. and Their Relation to Earnings Mobility

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Author Info

  • Robert A. Moffitt

    (Johns Hopkins University)

  • Peter Gottschalk

    ()
    (Boston College)

Abstract

We use the Michigan Panel Data Study on Income Dynamics to decompose the well-known rise in cross-sectional variance of individual male earnings in the U.S. into permanent and transitory components. We find that about half of the increase has arisen from an increase in the variance of permanent component of earnings and half from an increase in the variance of the transitory component over the period 1969-1991. In contrast to previous work by the authors, we employ a formal model for earnings dynamics. we also show that our results are robust to alternative models for earnings dynamics used in past studies in the literature. Finally, we draw out the implications of our analysis for the study of earnings mobility and show that the findings obtained in recent studies of trends in mobility are contained in our earnings dynamics model.

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Bibliographic Info

Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 444.

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Length: 52 pages
Date of creation: 01 Jul 1995
Date of revision: 01 Nov 1998
Handle: RePEc:boc:bocoec:444

Note: This paper has also been titled "Trends in the Covariance Structure of Earnings in the U.S.: 1969-1987"
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Keywords: Covariance structure of earnings. transitory fluctuations; permanent earnings;

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Cited by:
  1. Pedro Albarran & Raquel Carrasco & Maite Martinez-Granado, 2009. "Inequality for Wage Earners and Self-Employed: Evidence from Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(4), pages 491-518, 08.
  2. Olga Gorbachev & Keshav Dogra, 2009. "Evolution of Consumption Volatility for the Liquidity Constrained Households over 1983 to 2004," ESE Discussion Papers 193, Edinburgh School of Economics, University of Edinburgh.
  3. Sologon, Denisa Maria & O'Donoghue, Cathal, 2009. "Earnings Dynamics and Inequality among Men across 14 EU Countries, 1994-2001: Evidence from ECHP," IZA Discussion Papers 4012, Institute for the Study of Labor (IZA).
  4. SOLOGON Denisa & VAN KERM Philippe, 2014. "Earnings dynamics, foreign workers and the stability of inequality trends in Luxembourg 1988-2009," CEPS/INSTEAD Working Paper Series 2014-03, CEPS/INSTEAD.

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