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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2010:21.
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, Center for Labor Studies 2010:19, 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 &bull Diffusion Processes
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- 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:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999.
"Consumption Over the Life Cycle,"
NBER Working Papers
7271, National Bureau of Economic Research, Inc.
- repec:fip:fedreq:y:2011:i:3q:p:255-326:n:vol.97no.3 is not listed on IDEAS
- Fatih Guvenen, 2011. "Macroeconomics with hetereogeneity : a practical guide," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 255-326.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katarina Grönvall).
If references are entirely missing, you can add them using this form.