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Changing Income Risk across the US Skill Distribution: Evidence from a Generalized Kalman Filter

Author

Listed:
  • J. Carter Braxton
  • Kyle F. Herkenhoff
  • Jonathan L. Rothbaum
  • Lawrence Schmidt

Abstract

For whom has earnings risk changed, and why? We answer these questions by combining the Kalman filter and EM-algorithm to estimate persistent and temporary earnings for every individual at every point in time. We apply our method to administrative earnings linked with survey data. We show that since the 1980s, persistent earnings risk rose by 20% for both employed and unemployed workers and the scarring effects of unemployment doubled. At the same time, temporary earnings risk declined. Using education and occupation codes, we show that rising persistent earnings risk is concentrated among high-skill workers and related to technology adoption.

Suggested Citation

  • J. Carter Braxton & Kyle F. Herkenhoff & Jonathan L. Rothbaum & Lawrence Schmidt, 2021. "Changing Income Risk across the US Skill Distribution: Evidence from a Generalized Kalman Filter," NBER Working Papers 29567, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29567
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    Cited by:

    1. repec:cam:camjip:2235 is not listed on IDEAS
    2. Dirk Krueger & Harald Uhlig, 2022. "Neoclassical Growth with Limited Commitment," NBER Working Papers 30518, National Bureau of Economic Research, Inc.
    3. J. Carter Braxton & Bledi Taska, 2025. "Technological Change and Insuring Job Loss," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 58, October.
    4. Ariel Mecikovsky & Felix Wellschmied, 2025. "Wage Risk, Employment Risk, And The Rise In Wage Inequality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 66(2), pages 567-594, May.
    5. Robert Moffitt & John Abowd & Christopher Bollinger & Michael Carr & Charles Hokayem & Kevin McKinney & Emily Wiemers & Sisi Zhang & James Ziliak, 2022. "Reconciling Trends in U.S. Male Earnings Volatility: Results from Survey and Administrative Data," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 41(1), pages 1-11, December.
    6. Yunho Cho & James Morley & Aarti Singh, 2024. "Did marginal propensities to consume change with the housing boom and bust?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(1), pages 174-199, January.
    7. J. Carter Braxton & Bledi Taska, 2023. "Technological Change and the Consequences of Job Loss," American Economic Review, American Economic Association, vol. 113(2), pages 279-316, February.
    8. Gu, Shijun & Jia, Chengcheng, 2023. "A comment on “wealth inequality and endogenous growth” by Byoungchan Lee," Journal of Monetary Economics, Elsevier, vol. 133(C), pages 149-155.
    9. Krueger, Dirk & Uhlig, Harald, 2023. "Neoclassical growth with long-term one-sided commitment contracts," CFS Working Paper Series 698, Center for Financial Studies (CFS).
    10. Juan M. Sanchez & Stefan Song, 2025. "Earnings Misperceptions and Household Distress," Working Papers 2025-030, Federal Reserve Bank of St. Louis, revised 12 Nov 2025.
    11. Freund, L. B., 2022. "Superstar Teams," Cambridge Working Papers in Economics 2276, Faculty of Economics, University of Cambridge.

    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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