Dmytro Hryshko

Labor income profiles are not heterogeneous: Evidence from income growth rates

Idiosyncratic labor incomes are typically modeled either by stochastic processes with heterogeneous income profiles (HIPs) or restricted income profiles (RIPs). The HIP assumes that individual labor income grows deterministically at an unobserved rate and contains a persistent but stationary component, while the RIP assumes that income contains a random walk, a stationary component, and no unobserved deterministic growth-rate component. I show that if idiosyncratic labor income contains a persistent component, a deterministic household-specific trend, and a random-walk component, then all of the components can be identified in small unbalanced panels. Using data on idiosyncratic labor income growth from the Panel Study of Income Dynamics, I find that the estimated variance of deterministic income growth is zero, that is, the HIP model can be rejected. The RIP model with a permanent component cannot be rejected. This result is important for an appropriate choice of modeling the heterogeneity in individual incomes and calibrating/estimating macromodels with incomplete insurance markets and heterogeneous agents. Keywords. Idiosyncratic income processes, heterogeneity, labor income risk. JEL classification. J31, D91, E21.

Moving to a Job: The Role of Home Equity, Debt, and Access to Credit

Using individual-level credit reports merged with loan-level data on mortgages, we estimate how mobility relates to home equity and labor market conditions. We control for constant individual-specific traits with fixed effects and find that homeowners with negative home equity move to other metropolitan areas more than other homeowners. We use a dynamic quantitative model of consumption, housing, employment, and mobility to interpret our findings. The utility gain from accepting a higher-paid job in another area is negatively correlated with home equity. The relationship between home equity and mobility in the data is well replicated by the model.

The Effect of Education on Equity Holdings

We study the effect of education on equity ownership in the form of stocks or mutual funds (outside of retirement accounts). We find a causal effect of education on stockholding using the number of colleges in the county where the respondent grew up as an instrument and data from the Panel Study of Income Dynamics. The effect is particularly strong for whites from non-privileged backgrounds. We explore the channels through which education affects equity holdings using the Wisconsin Longitudinal Survey and find that, controlling for family fixed effects, gaining a white-collar job appears to be the main channel.