Earnings Dynamics and Its Intergenerational Transmission: Evidence from Norway

Using administrative data, we provide an extensive characterization of laborearnings dynamics in Norway. Some of our findings are as follows. (i) Norway hasnot 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 butexpands in the top 10%. (iii) The earnings growth distribution is left skewed andleptokurtic, and the extent of these nonnormalities varies with age and past income.Linking individuals to their parents, we also investigate the intergenerationaltransmission of incomedynamics.We find that children of high-income, high-wealthfathers enjoy steeper income growth over the life cycle and face more volatile butmore positively skewed income changes, suggesting that they are more likely to pur-sue high-return, high-risk careers. Income growth for children of poorer fathers ismore gradual and more left skewed, displaying higher left tail risk. Furthermore, theincome dynamics of fathers and children are strongly correlated: children of fatherswith steeper life-cycle income growth, more volatile incomes, or higher downsiderisk also have income streams of similar properties. These findings shed new lighton the determinants of intergenerational mobility.

Quantitative Economics