We consider a general framework to study the evolution of wage and earnings residuals that incorporates features highlighted by two influential but distinct literatures in economics: (i) unobserved skills with changing non-linear pricing functions and (ii) idiosyncratic shocks with both permanent and transitory components. We first provide nonparametric identification conditions for the distribution of unobserved skills, all unobserved skill pricing functions, and (nearly) all distributions for both permanent and MA(q) transitory shocks. We then discuss identification and estimation using a moment-based approach, restricting unobserved skill pricing functions to be polynomials. Using data on log earnings for men ages 30-59 in the PSID, we estimate the evolution of unobserved skill pricing functions and the distributions of unobserved skills, transitory, and permanent shocks from 1970 to 2008. We highlight five main findings: (i) The returns to unobserved skill rose over the 1970s and early 1980s, fell over the late 1980s and early 1990s, and then remained quite stable through the end of our sample period. Since the mid-1990s, we observe some evidence of polarization: the returns to unobserved skill declined at the bottom of the distribution while they remained relatively constant over the top half. (ii) The variance of unobserved skill changed very little across most cohorts in our sample (those born between 1925 and 1955). (iii) The variance of transitory shocks jumped up considerably in the early 1980s but shows little long-run trend otherwise over the more than thirty year period we study. (iv) The variance of permanent shocks declined very slightly over the 1970s, then rose systematically through the end of our sample by 15 to 20 log points. The increase in this variance over the 1980s and 1990s was strongest for workers with low unobserved ability. (v) In most years, the distribution of unobserved skill pricing is positively skewed, while the distributions of permanent and (especially) transitory shocks are negatively skewed.

The stochastic process for earnings is the key element of incomplete markets models in modern quantitative macroeconomics. We show that a simple modification of the canonical process used in the literature leads to a dramatic improvement in the measurement of earnings dynamics in administrative and survey data alike. Empirically, earnings at the start or end of earnings spells are lower and more volatile than the observations in the interior of earnings histories, reflecting the effects of working less than the full year as well as deviations of wages due to e.g. tenure effects. Ignoring these properties of earnings, as is standard in the literature, leads to a substantial mismeasurement of the variances of permanent and transitory shocks and induces the large and widely documented divergence in the estimates of these variances based on fitting the earnings moments in levels or growth rates. Accounting for these effects enables more accurate analysis using quantitative models with permanent and transitory earnings risk, and improves empirical estimates of consumption insurance against permanent earnings shocks.

In this paper we use indirect inference to estimate a joint model of earnings, employment, job changes, wage rates, and work hours over a career. Our model incorporates duration dependence in several variables, multiple sources of unobserved heterogeneity, job-specific error components in both wages and hours, and measurement error. We use the model to address a number of important questions in labor economics, including the source of the experience profile of wages, the response of job changes to outside wage offers, and the effects of seniority on job changes. We provide estimates of the dynamic response of wage rates, hours, and earnings to various shocks and measure the relative contributions of the shocks to the variance of earnings in a given year and over a lifetime. We find that human capital accounts for most of the growth of earnings over a career although job seniority and job mobility also play significant roles. Unemployment shocks have a large impact on earnings in the short run as well a substantial long long-term effect that operates through the wage rate. Shocks associated with job changes and unemployment make a large contribution to the variance of career earnings and operate mostly through the job-specific error components in wages and hours.

We use matched employer-employee data from Sweden to study the role of the firm in affecting the stochastic properties of wages. Our model accounts for endogenous participation and mobility decisions. We find that firm-specific permanent productivity shocks transmit to individual wages, but the effect is mostly concentrated among the high-skilled workers; firm-specific temporary shocks mostly affect the low-skilled. The updates to worker-firm specific match effects over the life of a firm-worker relationship are small. Substantial growth in earnings variance over the life cycle for high-skilled workers is driven by firms accounting for 44% of cross-sectional variance by age 55.

Income, employment, family composition, health and retirement - are all topics on which the Panel Study of Income Dynamics (PSID) has annually gathered information from more than 4,800 US households. Hill sets out to make this wealth of data more accessible to researchers by reviewing key analysis issues and identifying key variables for the user. Several detailed analysis examples show how to make use of the PSID to estimate earnings regressions, changes in women's income following divorce and the correlation between parents' income and a child's adult income, as well as to create a longitudinal poverty measure.

This paper summarizes statistics on the key aspects of the distribution of earnings levels and earnings changes using administrative (social security) data from Italy between 1985 and 2016. During the time covered by our data, earnings inequality and earnings volatility increased, while earnings mobility did not change significantly. We connect these trends with some salient facts about the Italian labor market, in particular the labor market reforms of the 1990s and 2000s which induced a substantial rise in fixedterm and part-time employment. The rise in parttime work explains much of the rise in earnings inequality, while the rise in fixed-term contracts explains much of the rise in volatility. Both these trends affect the earnings distribution through hours worked: part-time jobs reduce hours worked within a week, while fixed-term contracts reduce the number of weeks worked during the year as well as increase their volatility. We find weak evidence that fixed-term contracts represent a "stepping-stone" to permanent employment. Finally, we offer suggestive evidence that the labor market reforms contributed to the slowdown in labor productivity in Italy by delaying human capital accumulation (in the form of general and firm-specific experience) of recent cohorts.