Improving the Measurement of Earnings Dynamics

Moira K. Daly, Dmytro Hryshko, Iourii Manovskii

Publikation: Working paperForskning

Resumé

The stochastic process for earnings is the key element of incomplete markets models in modern quantitative macroeconomics. We show that a simple modification of the canonical process used in the literature leads to a dramatic improvement in the measurement of earnings dynamics in administrative and survey data alike. Empirically, earnings at the start or end of earnings spells are lower and more volatile than the observations in the interior of earnings histories, reflecting the effects of working less than the full year as well as deviations of wages due to e.g. tenure effects. Ignoring these properties of earnings, as is standard in the literature, leads to a substantial mismeasurement of the variances of permanent and transitory shocks and induces the large and widely documented divergence in the estimates of these variances based on fitting the earnings moments in levels or growth rates. Accounting for these effects enables more accurate analysis using quantitative models with permanent and transitory earnings risk, and improves empirical estimates of consumption insurance against permanent earnings shocks.
OriginalsprogEngelsk
Udgivelses stedCambridge, MA
UdgiverNational Bureau of Economic Research (NBER)
Antal sider58
DOI
StatusUdgivet - 2016
NavnNational Bureau of Economic Research. Working Paper Series
Nummer22938
ISSN0898-2937

Citer dette

Daly, M. K., Hryshko, D., & Manovskii, I. (2016). Improving the Measurement of Earnings Dynamics. Cambridge, MA: National Bureau of Economic Research (NBER). National Bureau of Economic Research. Working Paper Series, Nr. 22938 https://doi.org/10.3386/w22938
Daly, Moira K. ; Hryshko, Dmytro ; Manovskii, Iourii. / Improving the Measurement of Earnings Dynamics. Cambridge, MA : National Bureau of Economic Research (NBER), 2016. (National Bureau of Economic Research. Working Paper Series; Nr. 22938).
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Daly, MK, Hryshko, D & Manovskii, I 2016 'Improving the Measurement of Earnings Dynamics' National Bureau of Economic Research (NBER), Cambridge, MA. https://doi.org/10.3386/w22938

Improving the Measurement of Earnings Dynamics. / Daly, Moira K.; Hryshko, Dmytro; Manovskii, Iourii.

Cambridge, MA : National Bureau of Economic Research (NBER), 2016.

Publikation: Working paperForskning

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Daly MK, Hryshko D, Manovskii I. Improving the Measurement of Earnings Dynamics. Cambridge, MA: National Bureau of Economic Research (NBER). 2016. https://doi.org/10.3386/w22938