This paper examines whether nonlinear and non-Gaussian features of earnings dynamics are caused by hours or hourly wages. Our findings from the Norwegian administrative and survey data are as follows: (i) Nonlinear mean reversion in earnings is driven by the dynamics of hours worked rather than wages since wage dynamics are close to linear, while hours dynamics are nonlinear—negative changes to hours are transitory, while positive changes are persistent. (ii) Large earnings changes are driven equally by hours and wages, whereas small changes are associated mainly with wage shocks. (iii) Both wages and hours contribute to negative skewness and high kurtosis for earnings changes, although hour-wage interactions are quantitatively more important. (iv) When considering household earnings and disposable household income, the deviations from normality are mitigated relative to individual labor earnings: changes in disposable household income are approximately symmetric and less leptokurtic.
Dissecting Idiosyncratic Earnings Risk with Hans Holter, Serdar Ozkan, and Kjetil Storesletten, Journal of the European Economic Association, 22(2), 617–668, 2024.
Part of the Global Repository of Income Dynamics Project, which aims to produce a harmonized cross-country database containing detailed and relevant statistics on individual- and household-level wages, earnings, and related labor market measures.
Using administrative data, we provide an extensive characterization of labor earnings dynamics in Norway. Some of our findings are as follows: (i) Norway has not been immune to the increase in top earnings inequality seen in other countries, (ii) the earnings distribution compresses in the bottom 90% over the life cycle but expands in the top 10%, and (iii) the earnings growth distribution is left-skewed and leptokurtic, and the extent of these nonnormalities varies with age and past income. Linking individuals to their parents, we also investigate the intergenerational transmission of income dynamics. We find that children of high-income, highwealth fathers enjoy steeper income growth over the life cycle and face more volatile but more positively skewed income changes, suggesting that they are more likely to pursue high-return, high-risk careers. Income growth for children of poorer fathers is more gradual and more left skewed, displaying higher left tail risk. Furthermore, the income dynamics of fathers and children are strongly correlated: children of fathers with steeper life-cycle income growth, more volatile incomes, or higher downside risk also have income streams of similar properties. These findings shed new light on the determinants of intergenerational mobility.
Earnings Dynamics and Its Intergenerational Transmission: Evidence from Norway with Serdar Ozkan and Sergio Salgado, Quantitative Economics 13(4), 1707-1746, 2022.
This paper considers the use of alternative welfare metrics in evaluations of income inequality in a multi-period context. Using Norwegian longitudinal income data, it is found, as in many studies, that inequality is lower when each individual's annual average income is used as welfare metric, compared with the use of a single-period accounting framework. However, this result does not necessarily hold when aversion to income fluctuations is introduced. Furthermore, when actual incomes are replaced by expected incomes (conditional on an initial period), using a model of income dynamics, higher values of inequality over longer periods are typically found, although comparisons depend on inequality and variability aversion parameters. The results are strongly influenced by the observed high degree of systematic regression toward the (geometric) mean, combined with a large extent of individual unexpected effects.
Inequality Comparisons in a Multi-Period Framework: The Role of Alternative Welfare Metrics, with John Creedy and Thor Olav Thoresen, (2013) Review of Income and Wealth, 59, 235-249.
Utviklingen i inntektsulikhet, målt i et tverrsnitt av befolkningen, har vist en økning over perioden 1993-2006. Ved å se på personers inntekt over lengre perioder enn ett år av gangen kan vi imidlertid åpne for en mer nyansert vurdering av inntektsulikhet. For eksempel, hvis tverrsnittene viser at ulikheten øker fordi den øverste delen av inntektfordelingen øker sine inntekter relativt mer enn andre vil velferdsvurderingen være avhengig av om toppen av inntektsfordelingen består av er de samme personene over tid eller om det er ulike personer fra år til år. Det samme gjelder bunnen av inntektsfordelingen. Økt ulikhet er ofte forbundet med at personer i nederste del blir relativt mer fattige sammenliknet med resten av befolkningen. Men igjen er det avgjørende hvorvidt personene som befinner seg nederst i inntektsfordelingen er der permanent eller bare midlertidig.
Vedlegg 6 til NOU 2009: 10 "Fordelingsutvalget": https://www.regjeringen.no/no/dokumenter/nou-2009-10/id558836/?ch=23