Does the Labor-Income Process Contain a Unit Root? Evidence from Individual-Specific Time Series
AbstractEmploying econometric methods for univariate time series, this paper investigates the empirical validity of assuming a unit root in individuals’ labor-income processes. Using a Swedish register-based longitudinal dataset which allows us to follow a cohort of workers from 1968 to 2005, we are able to obtain distributions of median unbiased estimates of localto- unity parameters. The results indicate that earnings for the representative worker are governed by a process where shocks to earnings have fairly high persistence but are both economically and statistically significantly different from having permanent effects; that is, the largest autoregressive root is less than unity. These results add to the studies that question the heavy use of unit-root processes for earnings in calibrations of life-cycle models.
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Bibliographic InfoPaper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Labor Studies with number 2010:19.
Length: 26 pages
Date of creation: 09 Dec 2010
Date of revision:
Contact details of provider:
Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
Web page: http://www.nek.uu.se/
More information through EDIRC
Idiosyncratic income risk; Unit-root model; Earnings dynamics; Local-to-unity parameter;
Other versions of this item:
- Gustavsson, Magnus & Österholm, Pär, 2010. "Does the Labor-Income Process Contain a Unit Root? Evidence from Individual-Specific Time Series," Working Paper Series 2010:21, Uppsala University, Department of Economics.
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- 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-2010-12-23 (All new papers)
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