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Trends in the Transitory Variance of Male Earnings in the U.S., 1970-2004

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  • Robert Moffitt

    (Johns Hopkins University)

  • Peter Gottschalk

    ()
    (Boston College)

Abstract

We estimate the trend in the transitory variance of male earnings in the U.S. using the Michigan Panel Study of Income Dynamics from 1970 to 2004. Using both an error components model as well as simpler but more approximate methods, we find that the transitory variance increased substantially in the 1980’s and then remained at this new higher level through 2004 We also find a strong cyclical component to the transitory variance. Its increase accounts for between 30 and 65 percent of the total rise in cross-sectional variance, depending on the time period. The cross-sectional variance has recently increased but this reflects a rise in the variance of the permanent component, not the transitory component. Increases in transitory variance occurred for less educated in the early 1980s and for more educated workers in the later 1980s and early 1990s.

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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 697.

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Length: 49 pages
Date of creation: 30 Dec 2008
Date of revision:
Handle: RePEc:boc:bocoec:697

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Cited by:
  1. Joseph G. Altonji & Anthony A. Smith Jr. & Ivan Vidangos, 2013. "Modeling Earnings Dynamics," Econometrica, Econometric Society, Econometric Society, vol. 81(4), pages 1395-1454, 07.
  2. Till van Treeck, 2012. "Did inequality cause the U.S. financial crisis?," IMK Working Paper 91-2012, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  3. Magnac, Thierry & Pistolesi, Nicolas & Roux, Sébastien, 2013. "Post schooling human capital investments and the life cycle variance of earnings," TSE Working Papers 13-380, Toulouse School of Economics (TSE).
  4. Sabelhaus, John & Song, Jae, 2009. "Earnings Volatility Across Groups and Time," National Tax Journal, National Tax Association, vol. 62(2), pages 347-64, June.
  5. Paul Bingley & Lorenzo Cappellari & Niels Westergård-Nielsen, 2011. "Flexicurity, Wage Dynamics and Inequality over the Life-Cycle," CESifo Working Paper Series 3561, CESifo Group Munich.
  6. Jeffrey Brown & Chichun Fang & Francisco Gomes, 2012. "Risk and Returns to Education," NBER Working Papers 18300, National Bureau of Economic Research, Inc.

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