Scandinavian Working Papers in Economics
Working Paper Series,
Uppsala University, Department of Economics
No 2010:21: Does the Labor-Income Process Contain a Unit Root? Evidence from Individual-Specific Time Series
Magnus Gustavsson () and Pär Österholm ()
Additional contact information
Magnus Gustavsson: Department of Economics, Postal: Department of Economics, Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden
Pär Österholm: National Institute of Economic Research, Postal: Box 3116, 103 62 Stockholm, Sweden
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.
Keywords: Idiosyncratic income risk; Unit-root model; Earnings dynamics; Local-to-unity parameter
26 pages, December 9, 2010
Full text files
FULLTEXT01.pdf
Questions (including download problems) about the papers in this series should be directed to Ulrika Öjdeby ()
Report other problems with accessing this service to Sune Karlsson ().
RePEc:hhs:uunewp:2010_021This page generated on 2024-09-13 22:17:37.