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Time-varying unobserved heterogeneity in earnings shocks

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  • Botosaru, Irene

Abstract

This paper considers the transitory-permanent model for the earnings process, and allows for time-varying individual-specific unobserved heterogeneity in each shock. The cross-sectional heterogeneity in each shock is drawn from an unknown distribution at each time period. Sufficient conditions for the nonparametric identification of the cross-sectional density functions of the heterogeneity are provided, under different assumptions on the time series behavior of the transitory shock. The method proposed is then applied to earnings data to document a high degree of cross-sectional heterogeneity in each shock.

Suggested Citation

  • Botosaru, Irene, 2023. "Time-varying unobserved heterogeneity in earnings shocks," Journal of Econometrics, Elsevier, vol. 235(2), pages 1378-1393.
    • Handle: RePEc:eee:econom:v:235:y:2023:i:2:p:1378-1393
    DOI: 10.1016/j.jeconom.2022.08.012
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    More about this item

    Keywords

    Earnings volatility; Panel data; Heteroskedasticity; Linear integral equation;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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