Working Paper: CEPR ID: DP4728
Authors: Jonathan Heathcote; Kjetil Storesletten; Giovanni L. Violante
Abstract: Data on the life-cycle profiles of inequality in wages, earnings, hours worked and consumption contains precious information for answering questions about the ability of households to insure labor market risk and about the sources of this risk. This Paper demonstrates that the choice of whether to control for cohort effects or for time effects has a drastic impact on the estimated age profiles for inequality and, thus, on the answers to those questions. It also shows that time effects are required to account for the observed trends in inequality in thirty years of US data, whereas there is no evidence that cohort effects have been important.
Keywords: cohort effects; consumption inequality; labour supply; wage inequality
JEL Codes: C13; D31; D91; J22; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Cohort effects (C92) | Age profiles of inequality (D31) |
| Time effects (C41) | Age profiles of inequality (D31) |
| Cohort effects are negligible (J19) | Trends in inequality (D31) |
| Time effects (C41) | Observed trends in inequality (D31) |
| Cohort model (C24) | Lifecycle dynamics of inequality (I14) |
| Age profile of inequality (D31) | Cohort effects (C92) |