IZA DP No. 4402: The Life-Cycle and the Business-Cycle of Wage Risk: A Cross-Country Comparison
published in: Economics Letters, 2012, 117 (3), 831-833
This paper provides a cross-country comparison of life-cycle and business-cycle fluctuations in the dispersion of household-level wage innovations. We draw our inference from household panel data sets for the US, the UK, and Germany. First, we find that household characteristics explain about 25% of the dispersion in wages within an age group in all three countries. Second, the cross-sectional variance of wages is almost linearly increasing in household age in all three countries, but with increments being smaller in the European data. Third, we find that wage risk is procyclical in Germany while it is countercyclical in the US and acyclical in the UK, pointing towards labor market institutions being pivotal in determining the cyclical properties of labor market risk.