Modeling life-cycle earnings risk with positive and negative shocks / Manuel Sanchez (University of Bristol), Felix Wellschmied (Universidad Carlos III de Madrid and IZA) ; IZA Institute of Labor Economics
VerfasserSheng, Liugang ; Wellschmied, Felix
KörperschaftForschungsinstitut zur Zukunft der Arbeit
ErschienenBonn, Germany : IZA Institute of Labor Economics, July 2017
Elektronische Ressource
Umfang1 Online-Ressource (42 Seiten) : Diagramme
SerieDiscussion paper ; no. 10925
 Das Dokument ist öffentlich zugänglich im Rahmen des deutschen Urheberrechts.
Modeling life-cycle earnings risk with positive and negative shocks [3.24 mb]
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We study workers idiosyncratic earnings risk over the life-cycle using a German administrative data set. Positive and negative earnings shocks both contain a highly persistent component. The variance and average size of positive persistent shocks is decreasing over the life-cycle. The (absolute) size of negative persistent shocks is increasing. The probability to experience either of these shocks is U-shaped in age; during prime-age it is around 35 percent. Negative transitory shocks are relatively larger and more dispersed than positive transitory shocks. Their size and variance are increasing over the life-cycle. Large persistent positive shocks early in life generate large wealth holdings for the top one percent of workers in an incomplete markets model. Moreover, age-varying risk implies a linear increase in consumption inequality late in working life.