Employment Time and the Cyclicality of Earnings Growth

59 Pages Posted: 21 Nov 2016 Last revised: 30 Oct 2017

See all articles by Eran Hoffmann

Eran Hoffmann

Hebrew University of Jerusalem

Davide Malacrino

International Monetary Fund

Multiple version iconThere are 2 versions of this paper

Date Written: October 29, 2017

Abstract

We study how idiosyncratic earnings risk evolves over the business cycle in Italy and in the US. We distinguish between two sources of risk to annual earnings growth: changes in employment time (number of weeks of employment within a year) and changes in weekly earnings. Shocks to employment generate the tail distribution of annual earnings growth and account for the increased risk in recessions. In particular, an increase in the rate of separation and a decrease in the rate of hiring are responsible for the skewed annual earnings growth distribution observed in recessions. In contrast, the cross-sectional distribution of weekly earnings growth is relatively stable over the business cycle and exhibits little skewness. Thus, models that rely on cyclical idiosyncratic risk, should focus on cyclical employment risk rather than on cyclical wage risk.

Keywords: employment, labor earnings, idiosyncratic risk, business cycle

JEL Classification: E24, E32, J21, J22, J23, J63, J64

Suggested Citation

Hoffmann, Eran and Malacrino, Davide, Employment Time and the Cyclicality of Earnings Growth (October 29, 2017). Available at SSRN: https://ssrn.com/abstract=2872933 or http://dx.doi.org/10.2139/ssrn.2872933

Eran Hoffmann (Contact Author)

Hebrew University of Jerusalem ( email )

Jerusalem
Israel

HOME PAGE: http://https://sites.google.com/view/eranbhoffmann/

Davide Malacrino

International Monetary Fund ( email )

700 19th St NW
Washington, DC 20001
United States

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