TY  - RPRT
        AU  - Sanchez, Manuel
AU  - Wellschmied, Felix
        TI  - Modeling Life-Cycle Earnings Risk with Positive and Negative Shocks
        PY  - 2017/Jul/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 10925
        UR  - https://www.iza.org/publications/dp10925
        AB  - 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.
        KW  - life-cycle
KW  - earnings risk
KW  - wealth dispersion
        ER  -