The Distributions of Income and Consumption Risk: Evidence from Norwegian Registry Data

Abstract

Here is a temporary abstract but even that is subject to change as we get more results. Using the Norwegian Registry Data, containing income and wealth information for the entire Norwegian population, we study the distributions of idiosyncratic income and consumption risk over the life-cycle and over the business-cycle. For this purpose, we first document moments (including higher order moments) from the distributions of growth rates of labor income, business income and capital income, after tax and after transfer income both at the individual level, for males and females, and at the household level. We then decompose the growth in labor earnings into changes in wages and changes in labor hours, in particular, changes in extensive and intensive margins. At the household level, we also study the distribution of consumption risk and the degree of consumption insurance towards labor market risk. We find that for individual labor income the Norwegian data is qualitatively remarkably similar to the recent studies on population wide U.S. registry data by Guvenen et al. (2014,2015) (quantitatively there is more inequality and larger risk in the U.S.). The much richer Norwegian data, however, allows us to go beyond individual labor income. So far we find (i) The strong negative skewness of individual labor income, which have previously been documented, is due to negative skewness of work hours. (ii) The progressive Norwegian tax- and transfer system contribute significantly towards removing the effect of the negatively skewed labor income on total individual income. (With Elin Halvorsen, Serdar Ozkan and Kjetil Storesletten.)