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Employment time and the cyclicality of earnings growth

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  • Hoffmann, Eran B.
  • Malacrino, Davide

Abstract

We study how the distribution of earnings growth evolves over the business cycle in Italy. We distinguish between two sources of annual earnings growth: changes in employment time (number of weeks of employment within a year) and changes in weekly earnings. Changes in employment time generate the tails of the earnings growth distribution, and account for its procyclical skewness. In contrast, the distribution of weekly earnings growth is close to symmetric and stable over the cycle. This suggests that studies of earnings risk should carefully model the employment margin to avoid erroneous conclusions on the nature and magnitude of risks underlying individual earnings. We show that the combination of simple employment and wage processes is enough to capture the complex features of the earnings growth distribution.

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  • Hoffmann, Eran B. & Malacrino, Davide, 2019. "Employment time and the cyclicality of earnings growth," Journal of Public Economics, Elsevier, vol. 169(C), pages 160-171.
  • Handle: RePEc:eee:pubeco:v:169:y:2019:i:c:p:160-171
    DOI: 10.1016/j.jpubeco.2018.09.009
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    Cited by:

    1. Christopher Busch & David Domeij & Fatih Guvenen & Rocio Madera, 2018. "Asymmetric Business-Cycle Risk and Social Insurance," NBER Working Papers 24569, National Bureau of Economic Research, Inc.
    2. Pierre Pora & Lionel Wilner, 2019. "Decomposition of Labor Earnings Growth: Recovering Gaussianity?," Working Papers 2019-03, Center for Research in Economics and Statistics.

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