Individual Earnings and Family Income: Dynamics and Distribution

Joseph Altonji, Disa Hynsjo and Ivan Vidangos
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Disa Hynsjo: Yale University
Ivan Vidangos: Federal Reserve Board

Review of Economic Dynamics, 2023, vol. 49, 225-250

Abstract: We review research on the dynamics and distribution of individual earnings and family income. We start with univariate earnings models, which dominate the literature and are often used as the exogenous component of family income in structural models of saving. We present a version of the linear model that nests most of the specifications that have been used in the literature, and then discuss recent papers that stress nonnormal shocks, nonlinear and age-dependent processes, and heterogeneous model parameters. The recent work provides a much richer description of the nature of earnings volatility than the basic model. We then turn to models of individual earnings that are based on wages, employment, job mobility, and hours. These multivariate models permit measuring the sources of permanent differences in earnings and distinguishing among shocks that influence earnings through employment, job mobility, general productivity, or hours. Finally, we consider models of lifetime family income that integrate individual earnings, marriage (accounting for marital sorting), and earnings of a spouse (if present). We conclude by discussing directions for future work. (Copyright: Elsevier)

Keywords: univariate and multivariate models of earnings and family income dynamics; sources of income dynamics and inequality; marriage rates, sorting, and income dynamics and inequality (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1016/j.red.2022.08.005

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