Trends in the Variances of Permanent and Transitory Earnings in the U.S. and Their Relation to Earnings Mobility
AbstractWe 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 InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 444.
Length: 52 pages
Date of creation: 01 Jul 1995
Date of revision: 01 Nov 1998
Note: This paper has also been titled "Trends in the Covariance Structure of Earnings in the U.S.: 1969-1987"
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Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Web page: http://fmwww.bc.edu/EC/
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Covariance structure of earnings. transitory fluctuations; permanent earnings;
Find related papers by JEL classification:
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-01-31 (All new papers)
- NEP-ECM-2000-01-31 (Econometrics)
- NEP-ETS-2000-01-31 (Econometric Time Series)
- NEP-IFN-2000-01-31 (International Finance)
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