Revisiting Wage, Earnings, and Hours Profiles

Quaderni - Working Paper DSE N° 936

42 Pages Posted: 16 Apr 2014

See all articles by Peter Rupert

Peter Rupert

University of California, Santa Barbara (UCSB) - Department of Economics

Giulio Zanella

University of Bologna

Date Written: October 2012

Abstract

We document empirical life cycle profiles of wages, earnings, and hours of work for pay from the Panel Study of Income Dynamics, following the same workers for up to four decades. For six of the eight cohorts we analyze the wage profile does not decline with age (not before 65, at least), while the earnings profile always does. The discrepancy is explained by a sharp drop in the hours of work for pay profile beginning shortly after age 50, when many workers start a smooth transition into retirement by working progressively fewer hours. This pattern is not an artifact of staggered abrupt retirement, and is robust to attrition and selection-correction (i.e., taking into account that the composition of our sample, for a given cohort, changes over time).

We explore the nontrivial restrictions on dynamic models of the aggregate economy that this evidence suggests, and we provide numerical profiles that can be readily used in quantitative macroeconomic analysis.

Keywords: life cycle, wage profile, labor supply, intensive margin, human capital, pre-retirement

JEL Classification: E24, J13, J22, J2, J26

Suggested Citation

Rupert, Peter and Zanella, Giulio, Revisiting Wage, Earnings, and Hours Profiles (October 2012). Quaderni - Working Paper DSE N° 936, Available at SSRN: https://ssrn.com/abstract=2424758 or http://dx.doi.org/10.2139/ssrn.2424758

Peter Rupert (Contact Author)

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

2127 North Hall
Santa Barbara, CA 93106
United States

Giulio Zanella

University of Bologna ( email )

Piazza Scaravilli 2
Bologna, 40100
Italy

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