NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

On the Covariance Structure of Earnings and Hours Changes

John M. Abowd, David Card

NBER Working Paper No. 1832
Issued in February 1986
NBER Program(s):   LS

This paper presents an empirical analysis of changes in individual earnings and hours over time. Using longitudinal data from three panel surveys,we catalogue the main features of the covariance structure of changes in earnings and hours. We then present an interpretation of these features in terms of both a life-cycle labor supply model and a fixed-wage labor contract model. Our major findings are:(1) there is a remarkable similarity in the covariance structure of earnings and hours changes across the three surveys; and (2) apart from simple measurement error, the major component of variance in earnings and hours affects earnings and hours equi-proportionately.

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Published: Econometrica, vol.57, no.2, pp 411-446, March 1989.

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