Dissecting Idiosyncratic Earnings Risk

Earnings Dynamics in Germany

“…Di erences over the life-cycle indicate that younger workers are more likely to experience positive earnings changes associated with career switches up, whereas older workers (with long job tenures) are more likely to experience relatively large cuts when they nd a new job a er displacement. ese qualitative properties are in line with ndings for other countries like the United States, Norway, and the Netherlands (Guvenen et al 2019;Halvorsen et al 2020;De Nardi et al 2021a). using data from the SOEP, this section provides evidence on the contribution of hours and wages and the role of life events for large earnings swings experienced by male workers.…”

“…is paper also contributes to the broader literature on risk sharing including, among others, A anasio and Davis (1996), Blundell and Preston (1998), Heathcote et al (2014), andBlundell et al (2015), and more recent contributions by Prui and Turner (2020), Halvorsen et al (2020), andDe Nardi et al (2021a). Most nd, for di erent countries, that households e ectively insure against much of the risk facing primary earners.…”

“…Let y i t,h ≡ log(Y i t,h ) denote the log of labor earnings of individual i who is h years old in year t. To control for age and year e ects, I rst estimate age average earnings, d t,h , by regressing log individual earnings on a set of age and year dummies. en, following Halvorsen et al (2020), I compute RE for each worker as follows:…”

“…Guvenen et al (2019) also document that the persistence of labor income changes in the United States depends on the size of the change and earnings level. Halvorsen et al (2020) and De Nardi et al (2021a) use administrative data from Norway and the Netherlands, respectively, to study higher-order moments not only of income changes, but also of hours and wage growth. Both con rm rich earnings dynamics with heterogeneities and deviations from usual assumptions of normality and linearity.…”

What Do Data on Millions of U.S. Workers Reveal About Lifecycle Earnings Dynamics?

“…Moreover, we find that scarring effects are necessary to generate left‐skewness through extensive margin fluctuations. Finally, Halvorsen et al (2020) used Norwegian data and found that hourly wage changes exhibit left‐skewness and excess kurtosis, and both the magnitudes and their lifecycle and income variation are similar to those for earnings changes. Furthermore, they showed that large earnings changes are mostly driven by wages for high‐RE individuals, but the split between wages and hours is more equal for low‐RE workers.…”