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Trends in the Variances of Permanent and Transitory Earnings in the U.S. and Their Relation to Earnings Mobility

Listed author(s):
  • Robert A. Moffitt

    (Johns Hopkins University)

  • Peter Gottschalk


    (Boston College)

We use the Michigan Panel Data Study on Income Dynamics to decompose the well-known rise in cross-sectional variance of individual male earnings in the U.S. into permanent and transitory components. We find that about half of the increase has arisen from an increase in the variance of permanent component of earnings and half from an increase in the variance of the transitory component over the period 1969-1991. In contrast to previous work by the authors, we employ a formal model for earnings dynamics. we also show that our results are robust to alternative models for earnings dynamics used in past studies in the literature. Finally, we draw out the implications of our analysis for the study of earnings mobility and show that the findings obtained in recent studies of trends in mobility are contained in our earnings dynamics model.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 444.

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Length: 52 pages
Date of creation: 01 Jul 1995
Date of revision: 01 Nov 1998
Handle: RePEc:boc:bocoec:444
Note: This paper has also been titled "Trends in the Covariance Structure of Earnings in the U.S.: 1969-1987"
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