Modeling Earnings Dynamics

Joseph Altonji, Anthony Smith and Ivan Vidangos

No 14743, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we use indirect inference to estimate a joint model of earnings, employment, job changes, wage rates, and work hours over a career. Our model incorporates duration dependence in several variables, multiple sources of unobserved heterogeneity, job-specific error components in both wages and hours, and measurement error. We use the model to address a number of important questions in labor economics, including the source of the experience profile of wages, the response of job changes to outside wage offers, and the effects of seniority on job changes. We provide estimates of the dynamic response of wage rates, hours, and earnings to various shocks and measure the relative contributions of the shocks to the variance of earnings in a given year and over a lifetime. We find that human capital accounts for most of the growth of earnings over a career although job seniority and job mobility also play significant roles. Unemployment shocks have a large impact on earnings in the short run as well a substantial long long-term effect that operates through the wage rate. Shocks associated with job changes and unemployment make a large contribution to the variance of career earnings and operate mostly through the job-specific error components in wages and hours.

JEL-codes: D31 E21 J3 (search for similar items in EconPapers)
Date: 2009-02
New Economics Papers: this item is included in nep-lab and nep-mac
Note: EFG LS PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (55)

Published as Joseph G. Altonji & Anthony A. Smith Jr. & Ivan Vidangos, 2013. "Modeling Earnings Dynamics," Econometrica, Econometric Society, vol. 81(4), pages 1395-1454, 07.

Downloads: (external link)
http://www.nber.org/papers/w14743.pdf (application/pdf)

Related works:
Journal Article: Modeling Earnings Dynamics (2013)
Working Paper: MODELING EARNINGS DYNAMICS (2012)
Working Paper: Modeling earnings dynamics (2009)
Working Paper: Modeling Earnings Dynamics (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14743

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w14743

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().