Earnings Distribution Research Articles

The value of using early-career earnings data in the College Scorecard to guide college choices

Policymakers are increasingly including early-career earnings data in consumer-facing college search tools to help students and families make more informed postsecondary education decisions. We offer new evidence on the degree to which existing college-specific earnings data equip consumers with useful information by documenting the level of selection bias in the earnings metrics reported in the U.S. Department of Education's College Scorecard. Given growing interest in reporting earnings by college and major, we focus on the degree to which earnings differences across four-year colleges and universities can be explained by differences in major composition across institutions. We estimate that more than 70% of the variation in median earnings across institutions is explained by observable factors, and accounting for differences in major composition explains 20–30% of the variation in earnings over and above institutional selectivity and student composition. We also identify large variations in the distribution of earnings within colleges; as a result, comparisons of early-career earnings can be extremely sensitive to whether the median, 25th, or 75th percentiles are presented. Taken together, our findings indicate that consumers can easily draw misleading conclusions about institutional quality when using publicly available earnings data to compare institutions.

Secondary job holding in Germany

ABSTRACT Since 2003, the number and ratio of multiple jobholders has more than doubled, although the German labour market has been experiencing a strong and sustained upswing. This study analyses multiple jobholding from a time series as well as a cross section perspective. We use rich register data and multinomial logit estimations. The microeconometric findings are linked to macroeconomic trends. Workers hold multiple jobs primarily because of earnings´ or hours´ constraints in the main job. Towards the upper end of the earnings distribution, the probability to have another job does not rise again. Thus, we do not find evidence that another job shall enrich the job portfolio as such. Moreover, female workers, migrants, workers in West Germany as well as in service sectors have a higher than average probability of multiple jobholding. However, the individual factors explain the rise of multiple jobholding over time to a very small extent. Hence, we argue that the far-reaching exemption of second marginal jobs from social security contributions and taxes sets wrong incentives.

Are public sector workers in developing countries overpaid? Evidence from a new global dataset

This paper examines the public sector wage premium using nationally representative household surveys from 91 countries. The public sector generally pays a wage premium compared to all private sector salaried employees, but the size of the premium is sensitive to the choice of the private sector comparator and varies considerably by worker characteristics. For most countries, the average premium disappears when the public sector is compared to only formal sector private employees, especially when controlling for occupation. The public sector wage premium is higher for women and low-skilled workers. In contrast, high-skilled public sector employees are most often paid the same as their private sector counterparts or may even pay a penalty for working in the public sector. Consistent with this, the public sector premium is greater for employees with less education, those working in lower paid occupations, and those whose earnings fall in the lower part of the conditional earnings distribution. Across countries, the wage premium is only weakly associated with countries? level of development. These findings nuance the existing consensus that public sector workers tend to enjoy a significant wage premium over their private sector counterparts, and that this premium is especially large in low-income countries.

Reconciling Trends in Volatility: Evidence from the Sipp Survey and Administrative Data

As part of a set of papers using the same methods and sample selection criteria to estimate trends in male earnings volatility across a number of survey and administrative datasets, we conduct a new investigation of trends in male earnings volatility from the 1980s to 2014 using data from the Survey of Income and Program Participation (SIPP) survey and the SIPP Gold Standard File (SIPP GSF), which links the SIPP survey to administrative data on earnings. We find that the level of volatility is higher in the SIPP GSF than in the SIPP survey but that the trends are similar. Specifically, over the period where the datasets overlap between 1984 and 2012, volatility in the SIPP survey declines slightly while volatility in the SIPP GSF increases slightly but the differences are small in magnitude. Because the density of low earnings differs considerably across datasets, and volatility may vary across the earnings distribution, we estimate trends in volatility in the SIPP survey and SIPP GSF where we hold the earnings distribution fixed to resemble that in the Panel Study of Income Dynamics (PSID). We find that differences in the underlying earnings distribution explains almost all of the difference in the level of volatility between the SIPP survey and SIPP GSF and it somewhat reduces the small differences in trends.

Age-Specific Entrepreneurship and PAYG Public Pensions in Germany

We present new empirical evidence on the distribution of earnings, income and wealth among entrepreneurs in Germany. We document that both earnings and income are more concentrated among entrepreneurs than among workers and describe a large-scale overlapping-generations model that can replicate these findings. As an application, we compute the equilibrium effects of a reform of the German pay-as-you-go pension system in which entrepreneurs must also contribute and receive a pension. We show that in the presence of mobility between workers and entrepreneurs, the expected lifetime utility of all newborn households unanimously declines due to the general equilibrium effects of lower aggregate savings, and welfare losses amount to approximately 5% of total consumption. In addition, the integration of self-employed workers into the social security system in Germany does not help to improve its fiscal sustainability, and only an increase in the retirement age to 70 years will help to finance pensions at the present level beyond the year 2050.

Earnings Risks, Savings and Wealth Concentration

A criticism of earnings risk models of wealth inequality is that they do not accurately capture individual's earnings risks. I construct a stochastic process that directly determines workers earnings. I use a set of new empirical moments to match moments of earnings changes in the universe of workers in the U.S. economy. Despite its computational challenges, a stochastic process that determines earnings instead of labor productivity improves the modeling of risks as it allows me to (1) reproduce the distribution of earnings, (2) match several moments of the distribution of earnings changes, and (3) skill-dependence of earnings profiles. To study the implications of such data-guided earnings risks for wealth concentration, I develop a general equilibrium stochastic life cycle production economy with skilled and unskilled workers. I show that data-guided earnings risks, contrary to what Castaneda et al. (2003) implies, are not large enough to explain high saving rates of top earners. Therefore, wealth in the model is less concentrated than the data. I also study how changes in earnings affect the distribution of wealth over time. Consistent with the data, I allow for earnings profiles, skill premium, share of skilled workers in the population, and tax schedules to vary with time. My findings show that changes in Wealth inequality between 1989 and 2013 can almost entirely be attributed to changes in earnings dispersion. Although in both periods, wealth concentration is lower than the data, changes in the wealth share of top one percent over time matches the data.

Adolescent depression and subsequent earnings across early to middle adulthood: a 25-year longitudinal cohort study.

The few available studies on early-onset depression and future earnings offer ambiguous findings, and potential sources of heterogeneity are poorly understood. We examined the differences in adult earnings of males and females with and without a history of depressive disorder in adolescence, with specific focuses on (1) future earnings in clinical subtypes of adolescent depression; (2) the growth and distribution of earnings over time within these subgroups and (3) the mediating role of subsequent depressive episodes occurring in early adulthood. Data were drawn from the Uppsala Longitudinal Adolescent Depression Study, a community-based cohort study initiated in Uppsala, Sweden, in the early 1990s. Comprehensive diagnostic assessments were conducted at age 16-17 and in follow-up interviews 15 years later, while consecutive data on earnings for the years 1996 to 2016 (ages 20-40) were drawn from population-based registries. The current study included participants with a history of persistent depressive disorder (PDD) (n = 175), episodic major depressive disorder (MDD) (n = 82), subthreshold depression (n = 64) or no depression (n = 218) in adolescence. The association of adolescent depression with earnings in adulthood was analysed using generalised estimating equations. Estimates were adjusted for major child and adolescent psychiatric comorbidities and parental socioeconomic status. The indirect (mediated) effect of depression in early adulthood (ages 19-30) on earnings in mid-adulthood (31-40) was estimated in mediation analysis. The study followed the 'STrengthening the Reporting of OBservational studies in Epidemiology' (STROBE) guidelines. Earnings across early to middle adulthood were lower for participants with a history of a PDD in adolescence than for their non-depressed peers, with an adjusted ratio of mean earnings of 0.85 (0.77-0.95) for females and 0.76 (0.60-0.95) for males. The differences were consistent over time, and more pronounced in the lower percentiles of the earnings distributions. The association was partially mediated by recurrent depression in early adulthood (48% in total; 61% for females, 29% for males). No reduction in earnings was observed among participants with episodic MDD in adolescence, while results for subthreshold depression were inconclusive. Our findings suggest that future earnings of adolescents with depressive disorders are contingent on the duration and natural long-term course of early-onset depression, emphasising the need for timely and effective interventions to avoid loss of human capital.

SOFT SKILLS AND EARNINGS: EVIDENCE FROM A NATIONWIDE SURVEY IN POLAND

The purpose of this paper is to examine differences in earnings in Poland with respect to the level of soft skills. The study is based on data from a nationwide survey on human capital carried out in 2014. Eight types of soft skills are taken into consideration: entrepreneurship and showing initiative, resistance to stress, cooperation in a group, communicativeness, ability to resolve conflicts, coordination of the work of other employees, creativity and continuous learning of new things. Distributions of earnings corresponding to groups of individuals declaring low, medium and high soft skills are compared by statistical methods, namely by kernel estimation, one-way ANOVA on ranks and relative distributions. The analysis leads to the conclusion that earnings distributions vary substantially with regard to the level of soft skills. The biggest differences concern such skills as entrepreneurship and showing initiative, coordination of the work of other employees and creativity. This paper contributes to the knowledge about the associations between soft skills level and earnings.

The Speed of Earnings Responses to Taxation and the Role of Firm Labor Demand

This paper studies the speed at which workers' pre-tax earnings respond to tax changes along the intensive margin. We do so in the context of Germany, where a large discontinuity — or notch — in the tax schedule induces sharp bunching in the earnings distribution. We analyze earnings responses to two policy reforms that shift this notch outward. In a frictionless world, the workers that made up the excess mass at the old notch should all increase their earnings. While some of these workers indeed adjust their earnings rapidly, over 38% do not, and instead take several years to adjust. We propose that heterogeneity in firm labor demand plays a key role in generating the observed differences in the speed of workers' earnings responses and predict that adjustment will be quickest at growing firms. We test and find support for these demand-side effects in our linked employer-employee data.

Which Earnings Groups Have Been Most Affected by the COVID-19 Crisis?

The [Coronavirus Disease 2019] COVID-19 crisis has had unprecedented negative effects on the aggregate US economy, but especially on the labor market. The unemployment rate jumped from 3.5 per cent to 14.7 per cent between February and April and only slightly decreased to 13.3 per cent in May. Fifty million initial unemployment insurance (UI) claims have been filed so far this year, which is about 10 million more than total initial UI claims filed during the Great Recession. Besides its aggregate effects on the labor market, the COVID-19 crisis has had disproportionate effects on certain individuals. In this essay, we explore the differential labor market impacts across the earnings distribution.

Pension Reform and the Efficiency-Equity Trade-Off: Impacts of Removing an Early Retirement Subsidy

We provide empirical evidence that the removal of work disincentives embedded in retirement earnings tests can increase old-age labor supply considerably, but it does so at the cost of more income inequality. Causal effects are identified based on a reform of the Norwegian early retirement program, which entailed that adjacent birth cohorts were exposed to completely different work incentives from age 62. The reform removed a strict retirement earnings test such that pension wealth was redistributed from early to late retirees. Given the pre-existing employment and earnings patterns, this implied a considerable rise in old-age income inequality. In principle, this could have been offset by changes in the labor supply. We estimate that the reform triggered a 42% increase in hours worked during the ages covered by early retirement options. However, as the labor supply responses were of similar magnitudes across the earnings distribution, they did little to offset the rise in inequality. As measured by the Gini coefficient, inequality in overall old-age income rose by approximately 0.03 (17%).

The Long Run Earnings Effects of a Credit Market Disruption

This paper studies the long term consequences on workers' labour earnings of the credit crunch induced by the 2007-2008 financial crisis. We study the evolution of both employment and wages in a large sample of Italian workers followed for nine years after the start of the crisis. We rely on a unique matched bank-employer-employee administrative dataset to construct a firm-specific shock to credit supply, which identifies firms that, because of the collapse of the interbank market during the financial crisis, were unexpectedly affected by credit restrictions. We find that workers who were employed before the crisis in firms more exposed to the credit crunch experience persistent and sizable earnings losses, mainly due to a permanent drop in days worked. These effects are heterogeneous across workers, with high-type workers being more affected in the long run. Moreover, firms operating in areas with favourable labour market conditions react to the credit shock by hoarding high-type workers and displacing low-type ones. Under unfavourable labour market conditions instead, firms select to displace also high-type (and therefore more expensive) workers, even though wages do react to the slack. All in all, our results document persistent effects on the earnings distribution.

Estimating Adjustment Frictions Using Nonlinear Budget Sets: Method and Evidence from the Earnings Test

We introduce a method for estimating the cost of adjusting earnings, as well as the earnings elasticity with respect to the net-of-tax share. Our method uses information on bunching in the earnings distribution at convex budget set kinks before and after policy-induced changes in the magnitude of the kinks: the larger is the adjustment cost, the smaller is the absolute change in bunching from before to after the policy change. In the context of the Social Security Earnings Test, our results demonstrate that the short-run impact of changes in the effective marginal tax rate can be substantially attenuated. (JEL H24, H31, H55, J22, J31)

Les Entreprises Implantées au Cameroun Manipulent-ils Leurs Résultats Pour Eviter de Publier les Petites Pertes ?

The objective of this article is to determine if companies located in Cameroon manipulate their earnings to avoid publishing low losses. Based on a sample of 1,525 companies observed over a three-year period and using statistical tools such as normality histograms and statistical tests, we arrive at the results below. First, we note that there is indeed a discontinuity in the distribution of corporate earnings at the threshold of zero. This discontinuity allows us to identify suspicious companies which represent more than 67% of the companies studied. Also by comparing the number of suspicious businesses located to the right of the threshold to the number of suspicious businesses located to the left of the threshold, we find that there are more suspicious enterprises to the right of the zero earnings threshold. However, unlike studies carried out in European and American contexts, the proportion of suspicious companies located to the left of the threshold is relatively large. We then deepened our research to try to identify among the suspicious companies those which can be qualified as manipulative. This deepening was done through an analysis of the evolution over three years of the earnings of suspicious companies knowing that manipulation refers to the transfer over time of charges and products to obtain short terms changes in the transfer of wealth. This analysis allowed us to obtain, among the suspicious companies, a handling rate of more than 58%. Keywords: earnings management, accounting thresholds, zero result, suspicious companies, manipulative companies. DOI : 10.7176/RJFA/11-2-06 Publication date: January 31 st 2020

Nature of Work and Distribution of Risk: Evidence from Occupational Sorting, Skills, and Tasks

How does the nature of work—teleworkability and contact intensity—shape the distribution of health, earnings, and unemployment risks, created by the COVID-19 pandemic? To answer this question, I consider two contexts. First, I show that the existing patterns of spousal occupational sorting in the United States matter for the distribution of these risks. In particular, I show that sorting into occupations with similar contact intensity in the workplace mitigates the risk of intra-household contagion relative to the situation where spouses match at random in terms of occupations (zero sorting). Furthermore, I show that sorting into occupations with similar teleworkability exacerbates the exposure to earnings and unemployment risks relative to the case of zero sorting. Second, I document that teleworkable occupations more likely require higher education and experience levels as well as greater cognitive, social, character, and computer skills, compared to non-teleworkable occupations. This difference in skill requirements affects earnings and unemployment risks by increasing the likelihood of skill mismatch for the newly unemployed. My results imply that the current economic downturn may have long-run effects on employment prospects and earnings of workers who had non-teleworkable or high-contact-intensity jobs at the onset of the COVID-19 outbreak. I discuss the relevant policy implications and associated policy constraints that follow from my findings.

Impact of Earnings Variability and Regulatory Measures on Income Smoothening in Islamic Banks : Evidence from an Emerging Market

this study focuses on identification of income smoothening practices and the impact of stringent regulations on income smoothening of islamic banks listed on pakistan stock exchange (psx) for the period of 2010 to 2018. the frequency of income smoothing activities is evaluated through loan loss provisions (llps). data has been retrieved through bank financial statements and financial statements analysis (fsa) issued by state Bank of pakistan (sBp). in order to test income smoothening in islamic banks, regression model has been employed. the findings of the study reveal that islamic banks operating in pakistan use income smoothening practices to achieve their objectives despite presence of shariah law. further, the study also reveals that imposition of capital adequacy ratio through Basel accords has significant and positive impact on reduction of income smoothing activities. moreover, increase in the size of bank in terms of asset size has also positive impact through reduction of income smoothening in islamic banks of pakistan. moreover, non-performing loans (npl) and total loans (tl) also increase income smoothening. similarly, gdp also increases income smoothening. the study provides sight not only for auditors and regulators but also for investors and general public. the study also highlights that there is a dire need for regulators to adopt strict and close monitoring on the distribution of earnings to avoid smoothening practices. results also offer inputs to policymakers to customize their policies so that smoothening practices may be curtailed in islamic banks and true picture be provided to investors about bank performance.

Accounting for Wealth Concentration in the US

The recent literature has argued for high concentration of earnings, differences in rates of return on assets and bequests as potential determinants of the high level of wealth concentration in the US. Analyzing the joint distribution of earnings, capital income and net worth, we find evidence for excess returns on investment among the highest income groups. Nonetheless, concentration of labor earnings is the primary source of wealth concentration in the US. This finding reflects the high correlation between earnings and wealth in the data, as well as the fact that earnings are a major source of income for top income and wealth groups.

Technological Innovation and Labor Income Risk

This paper examines the relationship between technological progress and the riskiness of labor income using employer-employee matched income data from the United States. Results suggest innovation is associated with a substantial increase in the labor income risk, especially for workers at the top of the earnings distribution.

Impacts of the Covid-19 Pandemic and the Cares Act on Earnings and Inequality

Using data from the Current Population Survey (CPS), we show that the COVID-19 pandemic led to a loss of aggregate real labor earnings of more than $250 billion between March and July 2020. By exploiting the panel structure of the CPS, we show that the decline in aggregate earnings was entirely driven by declines in employment; individuals who remained employed did not experience any atypical earnings changes. We find that job losses were substantially larger among workers in low-paying jobs. This led to a dramatic increase in inequality in labor earnings during the pandemic. Simulating standard unemployment benefits and UI provisions in the CARES Act, we estimate that UI payments exceeded total pandemic earnings losses between March and July 2020 by $9 billion. Workers who were previously in the bottom third of the earnings distribution received 49% of the pandemic associated UI and CARES benefits, reversing the increases in labor earnings inequality. These lower income individuals are likely to have a high fiscal multiplier, suggesting these extra payments may have helped stimulate aggregate demand.

Taxing Top Earners: The Role of Entrepreneurs

This paper studies the optimal top marginal income tax rate in a quantitative framework with entrepreneurial choice, financing constraints, and realistic earnings and wealth distributions. I find that the revenue-maximizing top tax rate is approximately 41 percent — close to the recent levels in the US. In contrast, when calibrated with only workers to match realistic earnings and wealth distributions, the model predicts a revenue-maximizing top tax rate of 81 percent — close to the established view. There are two channels through which the baseline model has a lower revenue-maximizing top tax rate. First, the wealth distribution channel: increasing the top tax rate decreases wealth accumulation and leads to a less skewed wealth distribution in the long run (there are more top entrepreneurs with low wealth and less top entrepreneurs with high wealth). With financing constraints, there is a similar change in the business earnings distribution, implying a fall in the average business earnings at the top. Second, the general equilibrium effect on labor earnings of workers: in the model with entrepreneurs, increasing the top tax rate reduces the capital stock much more than labor supply, which decreases the capital-labor ratio and thus the equilibrium wage rate in the model economy. Finally, I find that the welfare-maximizing top marginal income tax rate is close to the revenue-maximizing one.