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On the Covariance Structure of Earnings and Hours Changes

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  • John M. Abowd
  • David Card

Abstract

This paper presents an empirical analysis of changes in individual earnings and hours over time. Using longitudinal data from three panel surveys,we catalogue the main features of the covariance structure of changes in earnings and hours. We then present an interpretation of these features in terms of both a life-cycle labor supply model and a fixed-wage labor contract model. Our major findings are:(1) there is a remarkable similarity in the covariance structure of earnings and hours changes across the three surveys; and (2) apart from simple measurement error, the major component of variance in earnings and hours affects earnings and hours equi-proportionately.

Suggested Citation

  • John M. Abowd & David Card, 1986. "On the Covariance Structure of Earnings and Hours Changes," NBER Working Papers 1832, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1832
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    References listed on IDEAS

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    1. Hausman, Jerry, 2015. "Specification tests in econometrics," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 38(2), pages 112-134.
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