Fluctuations in individual labor income: a panel VAR analysis

Ivan Vidangos
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Ivan Vidangos: https://www.federalreserve.gov/econres/ivan-vidangos.htm

No 2009-09, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper studies variation in individual labor income over time using a panel vector autoregression (PVAR) in income, the wage rate, hours of work, and hours of unemployment. The framework is used to investigate how much of the residual variation in labor income is due to residual variation in the wage rate, work hours, and unemployment hours. I also explore the dynamic effects of unanticipated changes in each of the variables in the system, investigate their interactions, and assess their contribution to short-run and long-run income movements. The model is estimated on a sample of male household heads from the Panel Study of Income Dynamics (PSID). I find that innovations in the wage rate and work hours (conditional on unemployment) are about equally important in the short run. Wage innovations are very persistent, while the effect of changes in hours is mostly transitory. As a result, the wage rate is much more important in the determination of income movements in the long run. Innovations in unemployment have a relatively small, but very persistent effect on income which operates through the wage rate.

Keywords: Income; Wages (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-lab and nep-mac
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Citations: View citations in EconPapers (6)

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