IMPROVING THE MEASUREMENT OF EARNINGS DYNAMICS

Empirically, earnings at the start or end of spells are lower and more volatile than in interior histories, reflecting mainly effects working less full year. Ignoring these properties leads to a mismeasurement permanent transitory shock variances induces large widely documented divergence estimates those based on fitting moments levels growth rates. Accounting for enables accurate analysis using quantitative models with risk improves empirical consumption insurance against shocks.