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Projecting Longitudinal Earnings Patterns for Long-Run Policy Analysis: Technical Paper 2003-02

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  • Amy Rehder Harris
  • John Sabelhaus
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    Abstract

    This paper presents a method for projecting person-level labor force participation and earnings for the U.S. population in a dynamic micro-simulation setting. A dynamic micro-simulation model starts with economic and demographic data for a current sample of the population, then stochastically "ages" that sample forward through time, ultimately generating a longitudinal micro data file, which is useful for studying Social Security and other long-term issues. The stochastic projections described here proceed in four steps: in each year, every person is sequentially assigned labor force participation, hours worked, unemployment spells, and earnings. The equations used to project the sequence of outcomes are designed to generate realistic cross-sectional and longitudinal heterogeneity, to capture cohort-level trends, and to be consistent with the underlying macro/policy environment in which the outcomes are projected. The projections suggest significant increases in the overall percentage of females in the labor force and the share of females working full time. Also, the relative earnings of lower-educated males are expected to continue declining, while the relative earnings of higher-educated females are projected to rise disproportionately.

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    Bibliographic Info

    Paper provided by Congressional Budget Office in its series Working Papers with number 14364.

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    Date of creation: 02 Apr 2003
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    Handle: RePEc:cbo:wpaper:14364

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    1. Carroll, Christopher D, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 1-55, February.
    2. Mark Huggett & Gustavo Ventura, 1995. "Understanding why high income households save more than low income households," Discussion Paper / Institute for Empirical Macroeconomics 106, Federal Reserve Bank of Minneapolis.
    3. Bound, John & Johnson, George, 1992. "Changes in the Structure of Wages in the 1980's: An Evaluation of Alternative Explanations," American Economic Review, American Economic Association, vol. 82(3), pages 371-92, June.
    4. Christopher D. Carroll, 1992. "The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(2), pages 61-156.
    5. Hotchkiss, Julie L, 1991. "The Definition of Part-Time Employment: A Switching Regression Model with Unknown Sample Selection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(4), pages 899-917, November.
    6. Katharine G. Abraham & Robert Shimer, 2001. "Changes in Unemployment Duration and Labor Force Attachment," NBER Working Papers 8513, National Bureau of Economic Research, Inc.
    7. 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 360-99, April.
    8. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-42, June.
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