Permanent and transitory earnings dynamics and lifetime income inequality in Sweden

Johan Gustafsson () and Johan Holmberg ()
Additional contact information
Johan Gustafsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, https://www.umu.se/handelshogskolan
Johan Holmberg: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, https://www.umu.se/handelshogskolan

No 1005, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This paper studies the role of permanent- and transitory earnings variability for lifetime income inequality in Sweden. We fit a permanent–transitory error component model to the autocovariance structure of earnings using administrative data for 2002–2015 and minimum distance estimation. We find that permanent earnings inequality increased during the first decade and that the financial crisis of 2008 temporarily heightened earnings volatility. Using this model, we simulate pensions and study lifetime income inequality. We find that permanent earnings differences generally contributes the most to lifetime income inequality. We conclude that the Swedish pension system provides some insurance against earnings risk, but accentuates the role of permanent earnings differences in explaining lifetime inequality.

Keywords: Permanent-transitory; Income pension entitlements; earning dynamics; life-cycle inequality (search for similar items in EconPapers)
JEL-codes: H55 I24 J31 J62 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2022-05-24
New Economics Papers: this item is included in nep-age, nep-eur and nep-ias
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.usbe.umu.se/ues/ues1005.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:umnees:1005

Access Statistics for this paper

More papers in Umeå Economic Studies from Umeå University, Department of Economics Department of Economics, Umeå University, S-901 87 Umeå, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by David Skog ().