Labor Income Dynamics and the Insurance from Taxes, Transfers, and the Family

Richard Blundell (), Michael Graber and Magne Mogstad

No 7916, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: What do labor income dynamics look like over the life-cycle? What is the relative importance of persistent shocks, transitory shocks and heterogeneous profiles? To what extent do taxes, transfers and the family attenuate these various factors in the evolution of life-cycle inequality? In this paper, we use rich Norwegian data to answer these important questions. We let individuals with different education levels have a separate income process; and within each skill group, we allow for non-stationarity in age and time, heterogeneous experience profiles, and shocks of varying persistence. We find that the income processes differ systematically by age, skill level and their interaction. To accurately describe labor income dynamics over the life-cycle, it is necessary to allow for heterogeneity by education levels and account for non-stationarity in age and time. Our findings suggest that the progressive nature of the Norwegian tax-transfer system plays a key role in attenuating the magnitude and persistence of income shocks, especially among the low skilled. By comparison, spouse's income matters less for the dynamics of inequality over the life-cycle.

Keywords: insurance; life cycle inequality; income dynamics (search for similar items in EconPapers)
JEL-codes: C33 D3 D91 J31 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2014-01
New Economics Papers: this item is included in nep-dem, nep-ias, nep-lab, nep-lma and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (58)

Published - published in: Journal of Public Economics, 2015, 127, 58-73

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Related works:
Journal Article: Labor income dynamics and the insurance from taxes, transfers, and the family (2015)
Working Paper: Labor income dynamics and the insurance from taxes, transfers and the family (2014)
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