Staff Reports
Anatomy of Lifetime Earnings Inequality: Heterogeneity in Job Ladder Risk vs. Human Capital
Number 908
December 2019

JEL classification: E24, J24, J31

Authors: Fatih Karahan, Serdar Ozkan, and Jae Song

We study the determinants of lifetime earnings (LE) inequality in the United States, for which differences in lifetime earnings growth are key. Using administrative data and focusing on the roles of job ladder dynamics and on-the-job learning, we document that 1) lower LE workers change jobs more often, mainly driven by higher nonemployment; 2) earnings growth for job stayers is similar at around 2 percent in the bottom two-thirds of the LE distribution, whereas for job switchers it rises with LE; and 3) top LE workers enjoy high earnings growth regardless of job switching. We estimate a job ladder model with on-the-job learning featuring ex ante heterogeneity in learning ability and job ladder riskā€”job loss, job finding, and contact rates. We find that learning ability differences explain almost all earnings growth heterogeneity above the median, whereas ex ante heterogeneity in job ladder risk accounts for 80 percent of LE growth differences below the median.

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AUTHOR DISCLOSURE STATEMENT(S)
Fatih Karahan
For the research that resulted in "Anatomy of Lifetime Earnings Inequality: Heterogeneity in Job Ladder Risk vs. Human Capital," I attest to the following:

1. Financial support for my research came entirely from my employer, the Federal Reserve Bank of New York.
2. I have not received any financial or in-kind support for this research from anyone other than the entities listed above.
3. I have no paid or unpaid positions as officer, director, or board member of any relevant non-profit organizations or profit-making entities.
4. I have no close relative or partners who received financial support from or work in any position at any relevant entity.
5. Some of the results presented in the paper use data from the Master Earnings File at the U.S. Social Security Administration (SSA) that are not publicly available. These results have been reviewed by the SSA to ensure that no confidential information is disclosed.

Serdar Ozkan
For the research that resulted in "Anatomy of Lifetime Earnings Inequality: Heterogeneity in Job Ladder Risk vs. Human Capital," I attest to the following:
1. Financial support for my research came entirely from my employer, University of Toronto.
2. I have not received any financial or in-kind support for this research from anyone other than the entities listed above.
3. I have no paid or unpaid positions as officer, director, or board member of any relevant nonprofit organizations or profit-making entities.
4. I have no close relative or partners who received financial support from or work in any position at any relevant entity.
5. Some of the results presented in the paper use data from the Master Earnings File at the U.S. Social Security Administration (SSA) that are not publicly available. These results have been reviewed by the SSA to ensure that no confidential information is disclosed.

Jae Song
The author declares that he has no relevant or material financial interests that relate to the research described in the paper "Anatomy of Lifetime Earnings Inequality: Heterogeneity in Job Ladder Risk vs. Human Capital."