Dissecting Idiosyncratic Earnings Risk

Elin Halvorsen (), Hans Holter, Serdar Ozkan and Kjetil Storesletten
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Elin Halvorsen: https://www.ssb.no/en/forskning/ansatte/elin-halvorsen

No 2022-024, Working Papers from Federal Reserve Bank of St. Louis

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 hours dynamics are nonlinear—negative changes to hours are transitory, while 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 approximately symmetric and less leptokurtic.

Keywords: earnings dynamics; income shocks; insurance; wages; hours; higher-order earnings risk; skewness; kurtosis; machine learning (search for similar items in EconPapers)
JEL-codes: E24 H24 J24 J31 (search for similar items in EconPapers)
Pages: 86 pages
Date: 2022-09-16, Revised 2023-03-02
New Economics Papers: this item is included in nep-big and nep-lma
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Dissecting Idiosyncratic Earnings Risk (2024)
Working Paper: Dissecting Idiosyncratic Earnings Risk (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:94799

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DOI: 10.20955/wp.2022.024

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