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

Author

Listed:
  • Robert A. Moffitt

    (Johns Hopkins University)

  • Peter Gottschalk

    () (Boston College)

Abstract

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.

Suggested Citation

  • Robert A. Moffitt & Peter Gottschalk, 1995. "Trends in the Variances of Permanent and Transitory Earnings in the U.S. and Their Relation to Earnings Mobility," Boston College Working Papers in Economics 444, Boston College Department of Economics, revised 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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    Cited by:

    1. Olga Gorbachev & Keshav Dogra, 2009. "Evolution of Consumption Volatility for the Liquidity Constrained Households over 1983 to 2004," ESE Discussion Papers 193, Edinburgh School of Economics, University of Edinburgh.
    2. Pedro Albarran & Raquel Carrasco & Maite Martinez-Granado, 2009. "Inequality for Wage Earners and Self-Employed: Evidence from Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(4), pages 491-518, August.
    3. Sologon, Denisa Maria & O'Donoghue, Cathal, 2009. "Earnings Dynamics and Inequality among Men across 14 EU Countries, 1994-2001: Evidence from ECHP," IZA Discussion Papers 4012, Institute for the Study of Labor (IZA).
    4. SOLOGON Denisa & VAN KERM Philippe, 2014. "Earnings dynamics, foreign workers and the stability of inequality trends in Luxembourg 1988-2009," LISER Working Paper Series 2014-03, LISER.

    More about this item

    Keywords

    Covariance structure of earnings. transitory fluctuations; permanent earnings;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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