Modelling Income Processes with Lots of Heterogeneity

Browning, Martin; Ejrnæs, Mette; Ortega, José Marcos

doi:10.1111/j.1467-937x.2010.00612.x

Cited by 133 publications

(105 citation statements)

References 55 publications

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“…As it turns out, our empirical distributions have most of the mass located well below zero, suggesting that temporary rather than permanent effects of shocks to earnings are a better representation for the typical worker. This conclusion is in accord with contributions such as Baker (1997), Guvenen (2007, 2009), Browning et al (2010, and Guvenen and Smith (2010).…”

Section: Introductionsupporting

confidence: 79%

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

Gustavsson¹,

Österholm²

2014

Journal of Economic Dynamics and Control

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract Employing econometric methods for univariate time series, this paper investigates the empirical validity of assuming a unit root in individuals' labor-income processes. Using a Swedish register-based longitudinal dataset which allows us to follow a cohort of workers from 1968 to 2005, we are able to obtain distributions of median unbiased estimates of localto-unity parameters. The results indicate that earnings for the representative worker are governed by a process where shocks to earnings have fairly high persistence but are both economically and statistically significantly different from having permanent effects; that is, the largest autoregressive root is less than unity. These results add to the studies that question the heavy use of unit-root processes for earnings in calibrations of life-cycle models. Terms of use: Documents inJEL Classification: C22; C23; J31

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Section: Introductionsupporting

confidence: 79%

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

Gustavsson¹,

Österholm²

2014

Journal of Economic Dynamics and Control

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“…Fuchs-Schündeln and Schündeln (2005) show that correcting for self-selection into occupations decreases precautionary savings significantly. In addition, income risk may be correlated with lifecycle profiles of income and expected mean levels of income (Browning, Ejrnaes and Alvarez 2010). This means that the estimated correlation between risk and savings that is coined as the precautionary motive may be contaminated by the life-cycle motive of savings.…”

Section: Introductionmentioning

confidence: 99%

Political uncertainty and household savings

Aaberge

Liu

Zhu

2017

Journal of Comparative Economics

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Despite macroeconomic evidence pointing to a negative aggregate consumption response due to political uncertainty, few papers have used microeconomic panel data to analyze how households adjust their consumption after an uncertainty shock. We study household savings and expenditure adjustment from an unexpected, large-scale and rapidly evolving political shock that occurred largely in May 1989 in Beijing, China. Using monthly micro panel data, we present evidence that a surge in political uncertainty resulted in significant temporary increases in savings among urban households in China. Households responded mainly by reducing semi-durable expenditure and frequency of major durable adjustment. The uncertainty effect is more pronounced among older, wealthier, and more socially advantaged households. We interpret our findings using existing models of precautionary behavior. By focusing on time variation in uncertainty, our identification strategy avoids many of the potential problems in empirical studies of precautionary savings such as self-selection and life-cycle effects.

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“…Extensions include replacing the fixed effect by a random walk with individual-specific drift or initial condition, and replacing the white noise by a stationary serially-correlated process. However, recent contributions have argued that it may be important to allow for more heterogeneity than in the additive model (5.1); see, e.g., Browning et al (2010) for a parametric approach. In this section, we show how finite mixtures can be used to shed some new light on the anatomy of the rise of earnings inequality in the U.S. From the PSID 1969-1998 we construct a set of five-year balanced subpanels, using a rolling window of length one.…”

Section: Empirical Applicationmentioning

confidence: 99%

Nonparametric estimation of finite measures

Bonhomme¹,

Jochmans²,

Robin³

2014

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract. The aim of this paper is to provide simple nonparametric methods to estimate finitemixture models from data with repeated measurements. Three measurements suffice for the mixture to be fully identified and so our approach can be used even with very short panel data. We provide distribution theory for estimators of the mixing proportions and the mixture distributions, and various functionals thereof. We also discuss inference on the number of components. These estimators are found to perform well in a series of Monte Carlo exercises. We apply our techniques to document heterogeneity in log annual earnings using PSID data spanning the period 1969-1998. Terms of use: Documents in EconStor may

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Modelling Income Processes with Lots of Heterogeneity

Cited by 133 publications

References 55 publications

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

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

Political uncertainty and household savings

Nonparametric estimation of finite measures

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