Working Paper: NBER ID: w25832
Authors: Mariacristina De Nardi; Giulio Fella; Marike G. Knoef; Gonzalo Pazpardo; Raun Van Ooijen
Abstract: We document new facts about risk in male wages and earnings, household earnings, and pre- and post-tax income in the Netherlands and the United States. We find that, in both countries, earnings display important deviations from the typical assumptions of linearity and normality. Individual-level male wage and earnings risk is relatively high at the beginning and end of the working life, and for those in the lower and upper parts of the income distribution. Hours are the main driver of the negative skewness and, to a lesser extent, the high kurtosis of earnings changes. Even though we find no evidence of added-worker effects, the presence of spousal earnings reduces the variability of household income compared to that of male earnings. In the Netherlands, government transfers are a major source of insurance, substantially reducing the standard deviation, negative skewness, and kurtosis of income changes. In the U.S. the role of family insurance is much larger than in the Netherlands. Family and government insurance reduce, but do not eliminate nonlinearities in household disposable income by age and previous earnings in either country.
Keywords: wage risk; income risk; insurance mechanisms; Netherlands; United States
JEL Codes: H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| age (J14) | individual-level male wage and earnings risk (J31) |
| income level (D31) | individual-level male wage and earnings risk (J31) |
| hours worked (J22) | negative skewness of earnings changes (C46) |
| hours worked (J22) | high kurtosis of earnings changes (C46) |
| spousal earnings (J31) | variability of household income (D31) |
| government transfers (H59) | insurance against income shocks (G52) |
| family insurance (G52) | nonlinearities in household disposable income (H31) |