On the Covariance Structure of Earnings and Hours Changes

John Abowd () and David Card

Econometrica, 1989, vol. 57, issue 2, 411-45

Abstract: This paper presents an empirical analysis of individual earnings and hours data from three different longitudinal surveys. In the first part of the paper, the authors catalog the main features of the covariance structure of earnings and hours changes. In the second part of the paper, they offer an interpretation of this model in terms of a simple life-cycle, labor-supply model. On the assumption that they can identify individual productivity growth with the shared component of earnings and hours variation, the authors obtain estimates of the intertemporal substitution elasticity. The results are not favorable to the life-cycle model: most of the covariation of earnings occurs at fixed hourly wage rates. Copyright 1989 by The Econometric Society.

Date: 1989
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Working Paper: On the Covariance Structure of Earnings and Hours Changes (1986)
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