IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Labor income dynamics and the insurance from taxes, transfers and the family

  • Richard Blundell


    (Institute for Fiscal Studies and IFS and UCL)

  • Michael Graber


    (Institute for Fiscal Studies)

  • Magne Mogstad


    (Institute for Fiscal Studies and University of Chicago)

What do labor income dynamics look like over the life-cycle? What is the relative importance of persistent shocks, transitory shocks and heterogeneous profi les? To what extent do taxes, transfers and the family attenuate these various factors in the evolution of life-cycle inequality? In this paper, we use rich Norwegian data to answer these important questions. We let individuals with di fferent education levels have a separate income process; and within each skill group, we allow for non-stationarity in age and time, heterogeneous experience profi les, and shocks of varying persistence. We find that the income processes diff er systematically by age, skill level and their interaction. To accurately describe labor income dynamics over the life-cycle, it is necessary to allow for heterogeneity by education levels and account for non-stationarity in age and time. Our findings suggest that the progressive nature of the Norwegian tax-transfer system plays a key role in attenuating the magnitude and persistence of income shocks, especially among the low skilled. By comparison, spouse's income matters less for the dynamics of inequality over the life-cycle.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W14/01.

in new window

Date of creation: 17 Jan 2014
Date of revision:
Handle: RePEc:ifs:ifsewp:14/01
Contact details of provider: Postal:
The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE

Phone: (+44) 020 7291 4800
Fax: (+44) 020 7323 4780
Web page:

More information through EDIRC

Order Information: Postal: The Institute for Fiscal Studies 7 Ridgmount Street LONDON WC1E 7AE

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Greg Kaplan, 2012. "Inequality and the life cycle," Quantitative Economics, Econometric Society, vol. 3(3), pages 471-525, November.
  2. Jason DeBacker & Bradley Heim & Vasia Panousi & Shanthi Ramnath & Ivan Vidangos, 2013. "Rising Inequality: Transitory or Persistent? New Evidence from a Panel of U.S. Tax Returns," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(1 (Spring), pages 67-142.
  3. Blundell, Richard & Pistaferri, Luigi & Saporta-Eksten, Itay, 2014. "Consumption inequality and family labor supply," Working Paper Series 1656, European Central Bank.
  4. Jacob A. Mincer, 1974. "Introduction to "Schooling, Experience, and Earnings"," NBER Chapters, in: Schooling, Experience, and Earnings, pages 1-4 National Bureau of Economic Research, Inc.
  5. Robert A. Moffitt & Peter Gottschalk, 2012. "Trends in the Transitory Variance of Male Earnings: Methods and Evidence," Journal of Human Resources, University of Wisconsin Press, vol. 47(1), pages 204-236.
  6. Michael Baker & Gary Solon, 2003. "Earnings Dynamics and Inequality among Canadian Men, 1976-1992: Evidence from Longitudinal Income Tax Records," Journal of Labor Economics, University of Chicago Press, vol. 21(2), pages 267-288, April.
  7. Wojciech Kopczuk & Emmanuel Saez & Jae Song, 2010. "Earnings Inequality and Mobility in the United States: Evidence from Social Security Data Since 1937," The Quarterly Journal of Economics, Oxford University Press, vol. 125(1), pages 91-128.
  8. Lundberg, Shelly, 1985. "The Added Worker Effect," Journal of Labor Economics, University of Chicago Press, vol. 3(1), pages 11-37, January.
  9. Mark Huggett & Gustavo Ventura & Amir Yaron, 2007. "Sources of Lifetime Inequality," Working Papers gueconwpa~07-07-04, Georgetown University, Department of Economics.
  10. 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.
  11. Ostrovsky Yuri, 2010. "Long-Run Earnings Inequality and Earnings Instability among Canadian Men Revisited, 1985-2005," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-34, March.
  12. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  13. Storesletten, Kjetil & Telmer, Chris I. & Yaron, Amir, 2001. "The welfare cost of business cycles revisited: Finite lives and cyclical variation in idiosyncratic risk," European Economic Review, Elsevier, vol. 45(7), pages 1311-1339.
  14. Fatih Guvenen, 2005. "An Empirical Investigation of Labor Income Processes," Macroeconomics 0508026, EconWPA.
  15. Richard Blundell & Luigi Pistaferri & Ian Preston, 2008. "Consumption Inequality and Partial Insurance," American Economic Review, American Economic Association, vol. 98(5), pages 1887-1921, December.
  16. Kjetil Storesletten & Chris I. Telmer & Amir Yaron, 2004. "Cyclical Dynamics in Idiosyncratic Labor Market Risk," Journal of Political Economy, University of Chicago Press, vol. 112(3), pages 695-717, June.
  17. James J. Heckman & Lance J. Lochner & Petra E. Todd, 2003. "Fifty Years of Mincer Earnings Regressions," NBER Working Papers 9732, National Bureau of Economic Research, Inc.
  18. Meghir, Costas & Pistaferri, Luigi, 2011. "Earnings, Consumption and Life Cycle Choices," Handbook of Labor Economics, Elsevier.
  19. Ostrovsky, Yuri, 2012. "The correlation of spouses' permanent and transitory earnings and family earnings inequality in Canada," Labour Economics, Elsevier, vol. 19(5), pages 756-768.
  20. Jacob A. Mincer, 1974. "Schooling, Experience, and Earnings," NBER Books, National Bureau of Economic Research, Inc, number minc74-1, September.
  21. Haider, S.J., 2000. "Earnings Instability and Earnings Inequality of Males in the United States: 1967-1991," Papers 00-15, RAND - Labor and Population Program.
  22. Lillard, Lee A & Weiss, Yoram, 1979. "Components of Variation in Panel Earnings Data: American Scientists, 1960-70," Econometrica, Econometric Society, vol. 47(2), pages 437-54, March.
  23. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
  24. Fatih Karahan & Serdar Ozkan, 2013. "On the Persistence of Income Shocks over the Life Cycle: Evidence, Theory, and Implications," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 452-476, July.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ifs:ifsewp:14/01. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Emma Hyman)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.