Income Dynamics, Income Risk, and Inequality

• Applicant: Professor Dr. Moritz Kuhn
• Subject Area: Economic Theory ; Economic Policy, Applied Economics
• Term: from 2013 to 2014
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 246366211

Observed income inequality in industrialized countries is large and is still growing. Important questions are how much of observed income inequality results from income risk in contrast to individual decisions, how does productivity risk translate into income risk, and finally how labor market policy shapes income dynamics, income risk, and inequality. The current research project aims at answering these question and estimates income risk from data of actual employment histories. For this purpose, I look at the data through the lens of a state of the art labor market model augmented by important features of observed employment relationships, namely, long-term contracts and limited contract enforceability. A quantitative investigation of this model delivers new insights for the welfare costs of labor market risk and the design of optimal labor market policy. The framework --- being mircofounded --- will also be used to study and discuss the link between labor market policy and income risk. The goal of this research project is to deepen our understanding of the interaction of income dynamics, income risk, and inequality.

• DFG Programme: Research Fellowships
• International Connection: USA
• Host: Professor Jose-Victor Rios-Rull, Ph.D.