Improving the Measurement of Earnings

Moira K. Daly, Dmytro Hryshko, Iourii Manovskii*

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Empirically, earnings at the start or end of earnings spells are lower and more volatile than in the interior of earnings histories, reflecting mainly the effects of working less than the full year. Ignoring these properties leads to a mismeasurement of the permanent and transitory shock variances and induces the large and widely documented divergence in the estimates of those 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.
Original languageEnglish
JournalInternational Economic Review
Number of pages56
ISSN0020-6598
DOIs
Publication statusPublished - 12 Jul 2021

Bibliographical note

Epub ahead of print. Published online: 12 July 2021.

Keywords

  • Earnings processes
  • Incomplete markets
  • Partial insurance
  • Estimation

Cite this