Thomas Sargent Professor of Economics at the University of Minnesota and consultant at the Minneapolis Fed. Views are my own. RT ≠ E.
Web page: https://users.nber.org/~denardim/
Mariacristina De Nardi
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How expectations shape labor market decisions:
Subjective Earnings and Employment Dynamics by Manuel Arellano, Orazio Attanasio, Margherita Borella, @mdenardi.bsky.social & Gonzalo Paz-Pardo
www.rfberlin.com/wp-content/u...
Showing how to identify models of earnings and employment dynamics from subjective expectations data, from Manuel Arellano, Orazio Attanasio, Margherita Borella, @mdenardi.bsky.social, and Gonzalo Paz-Pardo www.nber.org/papers/w35027
Bottom line: high observed earnings persistence does not necessarily mean highly persistent of individual-level productivity shocks. A large part reflects heterogeneity and employer transitions.
Reduced-form estimates can overstate persistence and volatility because they load on job transitions and sorting. Once we account for heterogeneity, volatility falls sharply and becomes much flatter across the earnings distribution.
Main result: we find less persistence and less volatility in individual productivity shocks than much of the earlier literature suggests, but more heterogeneity in ability and match quality.
