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Two Views of Inequality Over the Life Cycle

Author

Listed:
  • Jonathan Heathcote

    (Georgetown University,)

  • Kjetil Storesletten

    (University of Oslo,)

  • Giovanni L. Violante

    (New York University,)

Abstract

Data on the life-cycle profiles of inequality in wages, earnings, hours worked, and consumption contain precious information for answering questions about the ability of households to insure labor market risk and about the sources of this risk. This paper demonstrates that the choice of whether to control for cohort effects or for time effects has a drastic impact on the estimated age profiles for inequality and, thus on the answers to those questions. It also shows that time effects are required to account of the observed trends in inequality in 30 years of U.S. data, whereas there is no evidence that cohort effects have been important. (JEL: C13, D31, D91, J22, J31) Copyright (c) 2005 The European Economic Association.

Suggested Citation

  • Jonathan Heathcote & Kjetil Storesletten & Giovanni L. Violante, 2005. "Two Views of Inequality Over the Life Cycle," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 765-775, 04/05.
  • Handle: RePEc:tpr:jeurec:v:3:y:2005:i:2-3:p:765-775
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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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