Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/170909
Authors: 
Sanchez, Manuel
Wellschmied, Felix
Year of Publication: 
2017
Series/Report no.: 
IZA Discussion Papers 10925
Abstract: 
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.
Subjects: 
life-cycle
earnings risk
wealth dispersion
JEL: 
E21
E24
J31
Document Type: 
Working Paper

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