Dissecting Idiosyncratic Earnings Risk

Kjetil Storesletten, Elin Halvorsen, Hans Holter and Serdar Ozkan

No 15395, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 (search for similar items in EconPapers)
JEL-codes: E24 H24 J24 J31 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-cwa and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://cepr.org/publications/DP15395 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Dissecting Idiosyncratic Earnings Risk (2024)
Working Paper: Dissecting Idiosyncratic Earnings Risk (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:15395

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP15395

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().