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Two Views of Inequality Over the Life-Cycle

Author

Listed:
  • Heathcote, Jonathan
  • Storesletten, Kjetil
  • Violante, Giovanni L

Abstract

Data on the life-cycle profiles of inequality in wages, earnings, hours worked and consumption contains 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 for the observed trends in inequality in thirty years of US data, whereas there is no evidence that cohort effects have been important.

Suggested Citation

  • Heathcote, Jonathan & Storesletten, Kjetil & Violante, Giovanni L, 2004. "Two Views of Inequality Over the Life-Cycle," CEPR Discussion Papers 4728, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4728
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    Keywords

    cohort effects; consumption inequality; labour supply; wage inequality;

    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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