American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Changing Income Risk across the US Skill Distribution: Evidence from a Generalized Kalman Filter
American Economic Review
(pp. 4438–75)
Abstract
For whom has earnings risk changed, and why? We answer these questions by combining the Kalman filter and EM algorithm to estimate persistent and temporary earnings for every individual at every point in time. We apply our method to administrative earnings linked with survey data. We show that since the 1980s, persistent earnings risk rose by 12.5 percent for both employed and unemployed workers and the scarring effects of unemployment doubled. At the same time, temporary earnings risk declined. Using education and occupation codes, we show that rising persistent earnings risk is concentrated among high-skill workers and related to technology adoption.Citation
Braxton, J. Carter, Kyle Herkenhoff, Jonathan Rothbaum, and Lawrence Schmidt. 2025. "Changing Income Risk across the US Skill Distribution: Evidence from a Generalized Kalman Filter." American Economic Review 115 (12): 4438–75. DOI: 10.1257/aer.20231656Additional Materials
JEL Classification
- J22 Time Allocation and Labor Supply
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 Wage Level and Structure; Wage Differentials
- J64 Unemployment: Models, Duration, Incidence, and Job Search