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The curious incidence of shocks along the income distribution

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  • Tobias Broer

    (Stockholm University)

  • John Kramer
  • Kurt Mitman

Abstract

We use detailed labor market data from Germany to study the comovement of individual earnings as well as separation and job-finding probabilities with fluctuations in aggregate output. In addition, we estimate impulse responses of these variables to monetary policy shocks identified from high-frequency changes in Overnight Indexed Swap rates. We find that workers at the bottom of the income distribution are more exposed to aggregate earnings risk in general, and to monetary policy shocks specifically. Income risk for the poor is almost entirely ‘extensive', or due to cyclical fluctuations in labor market transitions, through procyclical job-finding and countercyclical separation rates. At higher incomes, in contrast,‘intensive'risk, from fluctuating income growth in continued employment, accounts for half of cyclical movements in income risk.

Suggested Citation

  • Tobias Broer & John Kramer & Kurt Mitman, 2020. "The curious incidence of shocks along the income distribution," Post-Print hal-04489790, HAL.
    • Handle: RePEc:hal:journl:hal-04489790
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