Hours Worked and Lifetime Earnings Inequality

Category: Macro Seminar
When: 02 July 2024
, 14:15
 - 15:30
Where: HoF E.01/Deutsche Bank
Speaker: Alexander Bick (Federal Reserve Bank of St. Louis)

Title: Hours Worked and Lifetime Earnings Inequality (with Adam Blandin and Richard Rogerson)

Abstract: We document substantial differences between individuals in cumulative hours worked over a lifetime. We assess the extent to which these differences contribute to inequality in lifetime income through the lens of a quantitative structural model of human capital accumulation. We show that the model requires both permanent and transitory differences in preferences for work in order to match lifetime hours patterns. In addition to heterogeneity in leisure preferences, we also allow for heterogeneity in initial human capital and learning ability, as well as idiosyncratic shocks to human capital throughout the life-cycle. The parametrized model implies that one quarter of the variance in lifetime income is driven by heterogeneity in leisure preferences, and that much of this effect works through human capital investment.