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Revisiting wage, earnings, and hours profiles

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  • Rupert, Peter
  • Zanella, Giulio

Abstract

We document empirical life cycle profiles of wages, earnings, and hours of work for pay from the Panel Study of Income Dynamics, following the same workers for up to four decades along the intensive margin of labor supply. For six of the eight cohorts we analyze the wage profile does not decline with age, while the earnings profile always does. The discrepancy is explained by a sharp drop of the hours profile beginning shortly after age 50, when many workers start a smooth transition into retirement by working progressively fewer hours. This pattern is not an artifact of staggered abrupt retirement, and is robust to attrition- and selection correction (i.e., to taking into account that the composition of our sample, for a given cohort, changes over time). We explore the nontrivial restrictions on dynamic models of the aggregate economy that this evidence suggests, and we provide numerical profiles that can be readily used in quantitative macroeconomic analysis.

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Paper provided by Department of Economics, UC Santa Barbara in its series University of California at Santa Barbara, Economics Working Paper Series with number qt61f2f1hv.

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Date of creation: 29 Aug 2012
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Handle: RePEc:cdl:ucsbec:qt61f2f1hv

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Keywords: Social and Behavioral Sciences; life cycle; wage profile; labor supply; intensive margin human capital; preretirement;

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Cited by:
  1. Heylen Freddy & Van de Kerckhove Renaat, 2013. "Employment by age, education, and economic growth: effects of fiscal policy composition in general equilibrium," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 55, October.
  2. P. Rupert & G. Zanella, 2014. "Grandchildren and Their Grandparents’ Labor Supply," Working Papers wp937, Dipartimento Scienze Economiche, Universita' di Bologna.
  3. Dirk Krueger & Alexander Ludwig, 2013. "Optimal Progressive Taxation and Education Subsidies in a Model of Endogenous Human Capital Formation," Working Paper Series in Economics 60, University of Cologne, Department of Economics.
  4. Pollak, Andreas, 2013. "Employment Insurance and the Business Cycle," MPRA Paper 49358, University Library of Munich, Germany.

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