Johan Holmberg ()
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Johan Holmberg: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden
Abstract: In this paper, we present a life-cycle earnings dynamics model including endogenous employment and job change. The model is estimated with the method of indirect inference using Swedish register data. By simulating data from this microeconomic model, we study the macroeconomic consequences of transitory shocks to unemployment risk. The results show that transitory aggregate shocks to unemployment risk have long-lasting negative effects on employment, income, and increases earnings volatility. By studying how unemployment at different ages affects the accumulation and distribution of pension entitlements, we find that becoming unemployed at 40 has the largest effect on pension accumulations. Furthermore, unobserved individual heterogeneity contributes substantially to the observed life-cycle earnings inequality for both men and women in Sweden.
Keywords: Earnings dynamics; unemployment; inequality; social insurance; pensions
JEL-codes: D63; E27; H55; J24; J64
50 pages, January 19, 2021
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