Does the labor-income process contain a unit root? Evidence from individual-specific time series

Abstract

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The Drivers of Life‐Cycle Wage Inequality in Australia

“…29 They FIGURE 5 Sample Autocovariance Function by Age 27 In particular, particular, Hryshko shows that GMM estimation based on wage growth rates from a simulated small, unbalanced panel produces insignificant estimates of r 2 b when the true model contained heterogeneous growth (r 2 b =0.0004). 28 Two recent panel studies (Browning et al, 2010;Gustavsson & € Osterholm, 2014), which employ more sophisticated methodologies that allow for heterogeneity in q, both reject a unit root in wages for most workers. They instead find support for a moderately to highly persistent wage process.…”

“… Two recent panel studies (Browning et al ., ; Gustavsson & Österholm, ), which employ more sophisticated methodologies that allow for heterogeneity in ρ , both reject a unit root in wages for most workers. They instead find support for a moderately to highly persistent wage process.…”

“… The availability of large administrative datasets in a number of countries has allowed more sophisticated ways of testing for a unit root in wages. See, for example, Gustavsson and Österholm () who examine this question using Swedish administrative data on male wages. They reject the unit root model. …”

Macroeconomics with Heterogeneity: A Practical Guide

“…Moreover, they "find strong evidence against the hypothesis that any worker has a unit root." Gustavsson and Osterholm (2010) use a long panel data set from administrative wage records on Swedish individuals. They employ local-to-unity techniques on individual-specific time series and reject the unit root assumption.…”

The persistent-transitory representation for earnings processes

“…Since evidence is accumulating that no one has an earnings process with a unit root (see, for example, Baker (1997), Guvenen (2009), Browning, Ejrnaes, andAlvarez (2010), and Gustavsson and Osterholm (2010)), we consider a generalization of the usual permanent-transitory model to a persistent-transitory (PT) model. In this model, there are two kinds of shocks: a persistent shock, which has an effect that persists forever (albeit with some possible decay if there is no unit root), and a transitory shock, which has only a short run impact (typically one or two periods).…”