Modeling Earnings Dynamics

Altonji, Joseph G.; Smith, Adam; Vidangos, Ivan

doi:10.2139/ssrn.1370513

Cited by 76 publications

(111 citation statements)

References 63 publications

Supporting

Mentioning

105

Contrasting

Order By: Relevance

“…Our evidence may be consistent with models with on-the-job search and job ladders, where the outside options employed workers bargain with are competing job offers rather than nonemployment (e.g., Postel-Vinay and Robin, 2002;Cahuc et al, 2006;Altonji et al, 2013;. However, more nuanced predictions of those models are not borne out in our data.…”

Section: Introductionsupporting

confidence: 83%

Wages and the Value of Nonemployment

et al. 2020

View full text Add to dashboard Cite

Nonemployment is often posited as a worker's outside option in wage setting models such as bargaining and wage posting. The value of this state is therefore a fundamental determinant of wages and, in turn, labor supply and job creation. We measure the effect of changes in the value of nonemployment on wages in existing jobs and among job switchers. Our quasi-experimental variation in nonemployment values arises from four large reforms of unemployment insurance (UI) benefit levels in Austria. We document that wages are insensitive to UI benefit levels: point estimates imply a wage response of less than $0.01 per $1.00 UI benefit increase, and we can reject sensitivities larger than 0.03. In contrast, a calibrated Nash bargaining model predicts a sensitivity of 0.39 -more than ten times larger. The empirical insensitivity holds even among workers with a priori low bargaining power, with low labor force attachment, with high predicted unemployment duration, among job switchers and recently unemployed workers, in areas of high unemployment, in firms with flexible pay policies, and when considering firm-level bargaining. The insensitivity of wages to the nonemployment value we document presents a puzzle to widely used wage setting protocols, and implies that nonemployment may not constitute workers' relevant threat point. Our evidence supports wage-setting mechanisms that insulate wages from the value of nonemployment. examine the wage pressure channel of UI. 4 Burdett and Mortensen (1998) and Manning (2011) are references for wage posting models. 5 Shimer (2005), Hall and Milgrom (2008), Chodorow-Reich and Karabarbounis (2016) and Hall (2017) discuss the role of the sensitivity of the Nash wage to outside options for employment fluctuations in matching models. 6 We also show that the model makes the same predictions for the sensitivity if treatment and control workers occupy segmented markets. 7 Manning (2011) and Card et al. (2018) review rent sharing estimates. In Appendix D, we translate the reduced-form elasticities into an upper bound for worker bargaining power. 8 Only the 1989 reform has been studied, with a focus on unemployment spell duration (Lalive et al., 2006).2 mandatory registration and because of long unemployment spells. Second, Austrian workers who quit are eligible for benefits -crucial for UI to indeed shift workers' threat points. 9 Third, Austrian UI does not feature experience rating. Fourth, even after UI benefit exhaustion, a significant share of Austrian workers receives means-tested benefits that, while lower in levels, move nearly one-to-one with a worker's previous UIB levels and thus our variation. We first visually analyze each reform nonparametrically by plotting raw data. We sort workers by their UI reference wage, and then plot their wage growth before and after each reform, along with the between-worker reform-induced variation in UI benefit levels. The raw data do not reveal any wage responses even after two years -in stark contrast to the large predicted wage effects from our cal...

show abstract

Section: Introductionsupporting

confidence: 83%

Wages and the Value of Nonemployment

et al. 2020

View full text Add to dashboard Cite

show abstract

“…Postel‐Vinay and Turon () document that a canonical job search model with job‐to‐job transitions can produce an earnings process with a persistence that is consistent with the data. Altonji, Smith, and Vidangos () established a similar result and propose health shocks as another source of persistent earnings changes. Guiso, Pistaferri, and Schivardi () and Lamadon () found in matched employer‐employee data that a sizeable part of persistent or permanent firm‐level productivity shocks are passed on to workers, while transitory shocks are not.…”

Section: Discussionmentioning

confidence: 70%

HIP, RIP, and the robustness of empirical earnings processes

Hoffmann

2019

View full text Add to dashboard Cite

The dispersion of individual returns to experience, often referred to as heterogeneity of income profiles (HIP), is a key parameter in empirical human capital models, in studies of life-cycle income inequality, and in heterogeneous agent models of life-cycle labor market dynamics. It is commonly estimated from age variation in the covariance structure of earnings. In this study, I show that this approach is invalid and tends to deliver estimates of HIP that are biased upward. The reason is that any age variation in covariance structures can be rationalized by age-dependent heteroscedasticity in the distribution of earnings shocks. Once one models such age effects flexibly the remaining identifying variation for HIP is the shape of the tails of lag profiles. Credible estimation of HIP thus imposes strong demands on the data since one requires many earnings observations per individual and a low rate of sample attrition. To investigate empirically whether the bias in estimates of HIP from omitting age effects is quantitatively important, I thus rely on administrative data from Germany on quarterly earnings that follow workers from labor market entry until 27 years into their career. To strengthen external validity, I focus my analysis on an education group that displays a covariance structure with qualitatively similar properties like its North American counterpart. I find that a HIP model with age effects in transitory, persistent and permanent shocks fits the covariance structure almost perfectly and delivers small and insignificant estimates for the HIP component. In sharp contrast, once I estimate a standard HIP model without age-effects the estimated slope heterogeneity increases by a factor of thirteen and becomes highly significant, with a dramatic deterioration of model fit. I reach the same conclusions from estimating the two models on a different covariance structure and from conducting a Monte Carlo analysis, suggesting that my quantitative results are not an artifact of one particular sample. and seminar participants at the CEPA seminar at the University of Toronto, the UBC empirical micro lunch seminar, and the 2012 conference on the use of administrative data at the IAB for helpful suggestions, and Benedikt Hartmann, Daniela Hochfellner, Peter Jacobebbinghaus, and other staff members at the FDZ-IAB for their hospitality. Daniel Shack has provided excellent research assistance. The usual disclaimer applies.

show abstract

“…The condition for the successful implementation of the decisions made is the blanket use of scientific approach in the course of their development, modern economic theory as a methodological basis for understanding current trends in the development of economic relations, the logic of economic decision-making, the application of quantitative analysis methods [7,8]. The theory of economics is closely related to accounting, the organization of the company's finances, therefore ensuring the high quality of the management decision depends on knowledge of the principles of accounting reporting, the specifics of the accounting policy at the enterprise, and financial planning.…”

Section: H Square 8 the Dangerous Declining Strategy (Destruction)mentioning

confidence: 99%