Seminar: Wage, earnings, and income dynamics of individuals and households in the Netherlands and the U.S.

Understanding wage processes is important, as wage risk influences many economic decisions such as consumption, saving and labor supply. Moreover, wage shocks have a negative effect on people’s welfare. On the individual level, people can protect their consumption against fluctuations in their income by adjusting their labor supply or by saving. Insurance can also take place at the household level, by adjustments in household labor supply or by household saving. Finally, government insurance schemes play a role to insure people against wage shocks. This paper provides new facts on the size and dynamics of wage shocks in the Netherlands and the United States, considering that wage dynamics feature substantial asymmetries and nonlinearities. The results show that earnings risk is relatively high for individuals in the lower and upper part of the income distribution, for younger individuals, and for individuals at the end of working life. Income risk is lower in the Netherlands than in the U.S. due to social insurances and the progressivity of the tax system. Family insurance, on the other hand, is more important in the U.S.