Labor Income Dynamics and the Insurance from Taxes, Transfers, and the Family

By Richard Blundell, Michael Graber, Magne Mogstad. Social Science Research Network, 2014

124 citations recorded by the source corpus.

What do labor income dynamics look like over the life-cycle? What is the relative importance of persistent shocks, transitory shocks and heterogeneous profiles? 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 population panel data to answer these important questions. We let individuals with different education levels have a separate income process; and within each skill group, we allow for non-stationarity in age and time, heterogeneous experience profiles, and shocks of varying persistence. We find that the income processes differ 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 redistributive 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.

Subfields: Accounting, Gender Studies, General Health Professions

View Paper: https://www.semanticscholar.org/paper/9832d36fdc06f54dfec4bfc4f7db809bffa3da0d

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Citations in the corpus

Asset Market Participation and Portfolio Choice over the Life-Cycle (2012, unknown): “In contrast, our estimates of the variance of permanent and transitory shocks are very close to those of Blundell, Graber, and Mogstad (2015), which are based on the same Norwegian data that we use but are obtained using a different methodology and exclude income from self employment.”
What Do Data on Millions of U.S. Workers Reveal about Life-Cycle Earnings Risk? (2015, methodology): “Our data set contains a unique employer identification number (EIN) for each job that a worker holds in a given year, which allows us to conduct such an analysis (see Appendix A.2.1).”
Earnings and Consumption Dynamics: A Nonlinear Panel Data Framework (2015, background): “Vt(Ait, ηit, εit) = max Cit u(Cit) + βEt [ Vt+1 ( Ai,t+1, ηi,t+1, εi,t+1 )] , (8)”
Saving and Wealth Inequality (2017, unknown): “…Geweke and Keane (2000) and Bonhomme and Robin (2009) document that innovations to earnings are not Gaussian, Meghir and Pistaferri (1998) and Blundell et al. (2015) show that innovations to earnings are not homoskedastic, and Guvenen et al. (2015b) highlight that earnings changes display…”
The Life-Cycle Benefits of an Influential Early Childhood Program (2016, unknown): “The pattern of life-cycle labor income we generate is typical for low-skilled workers (Blundell et al., 2015; Gladden and Taber, 2000; Sanders and Taber, 2012; Lagakos et al., 2016).”