Working Paper: CEPR ID: DP15395
Authors: Elin Halvorsen; Hans Holter; Serdar Ozkan; Kjetil Storesletten
Abstract: 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 negative changes to hours are transitory and 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 close to symmetric and less leptokurtic.
Keywords: earnings dynamics; income shocks; insurance; wages; hours; higher-order earnings risk; skewness; kurtosis
JEL Codes: E24; H24; J24; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changes in hours worked (J22) | nonlinear mean reversion in earnings (C22) |
| hourly wages (J31) | nonlinear mean reversion in earnings (C22) |
| large changes in earnings (E39) | variations in hours and wages (J38) |
| small earnings changes (J31) | wage shocks (J31) |
| wages and hours (J38) | negative skewness and high kurtosis in earnings changes (C46) |
| household earnings and disposable income (D12) | deviations from normality (C46) |