Earnings Dynamics Its Intergenerational Transmission: Evidence from Norway (February 2022, Accepted Quantitative Economics)
(with Elin Halvorsen and Serdar Ozkan)
Abstract. Using administrative data, we provide an extensive characterization of labor earnings dynamics in Norway. Some of our findings are as follows. (i) Norway has not been immune to the increase in top earnings inequality seen in other countries. (ii) The earnings distribution compresses in the bottom 90% over the life cycle but expands in the top 10%. (iii) The earnings growth distribution is left skewed and leptokurtic, and the extent of these nonnormalities varies with age and past income. Linking individuals to their parents, we also investigate the intergenerational transmission of income dynamics. We find that children of high-income, high-wealth fathers enjoy steeper income growth over the life cycle and face more volatile but more positively skewed income changes, suggesting that they are more likely to pursue high-return, high-risk careers. Income growth for children of poorer fathers is more gradual and more left skewed, displaying higher left tail risk. Furthermore, the income dynamics of fathers and children are strongly correlated: children of fathers with steeper life-cycle income growth, more volatile incomes, or higher downside risk also have income streams of similar properties. These findings shed new light on the determinants of intergenerational mobility.
Part of the Global Income Dynamics Project, which aims to produce a harmonized cross-country database containing detailed and relevant statistics on individual- and household-level wages, earnings, and related labor market measures. The STATA code used to produce the harmonized statistics in all countries was prepared by Serdar Ozkan and myself.
Technical Change and Entrepreneurship (July 2020, R&R AER)
Abstract. I document a significant decline in the share of entrepreneurs among US households over the last three decades. Most of this decline is accounted for by a drop in the share of entrepreneurs among college graduates. Using a standard entrepreneurial choice model with two skill groups—high- and low-skill individuals—I then argue that the decline is the outcome of two technological forces that have increased the returns to high-skill labor: the skill-biased technical change and the decrease in the price of capital. I find that these two forces account for three-quarters of the decline in the share of entrepreneurs. Paper
Abstract. Using firm-level panel data from the US Census Bureau and almost fifty other countries, we show that the skewness of the growth rates of employment, sales, and productivity is procyclical. In particular, these distributions display a large left tail of negative growth rates during recessions and a large right tail of positive growth rates during booms. We find similar results at the industry level: industries with falling growth rates see more left-skewed growth rates of firm sales, employment, and productivity. We then build a heterogeneous-agents model in which entrepreneurs face shocks with time-varying skewness that matches the firm-level distributions we document for the United States. Our quantitative results show that a negative shock to the skewness of firms’ productivity growth (keeping the mean and variance constant) generates a persistent drop in output, investment, hiring, and consumption. This suggests the rising risk of large negative firm-level shocks could be an important factor driving recessions. Paper
Abstract. This paper documents that individual income volatility in the United States has declined in an almost secular fashion since 1980—a phenomenon that we call the “Great Micro Moderation.” This finding contrasts with the conventional wisdom, based on studies using survey data, that income volatility—a simple measure of uncertainty—has increased substantially during the same period. The finding of declining volatility is consistent with a handful of recent papers that use administrative data. We substantially extend the existing empirical findings of declining volatility using data from both administrative and survey-based data sets. A key contribution of our paper is to link patterns of income volatility on the worker side to outcomes (and volatility) on the firm/employer side. With the information revealed by these linkages, we investigate several potential drivers of this trend to understand if declining volatility represents a broadly positive development—declining income risk and uncertainty—or a negative one, i.e., declining business dynamism. Paper
Work in Progress
Work Before PhD
Does the BIC Estimate and Forecast Better than the AIC? (with Carlos Medel). Economic Analysis Review, 2013. Paper.