%0 Report
        %A Sanchez, Manuel
%A Wellschmied, Felix
        %T Modeling Life-Cycle Earnings Risk with Positive and Negative Shocks
        %D 2017
        %8 2017 Jul
        %I Institute of Labor Economics (IZA)
        %C Bonn
        %7 IZA Discussion Paper
        %N 10925
        %U https://www.iza.org/publications/dp10925
        %X 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.
        %K life-cycle
%K earnings risk
%K wealth dispersion