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Abstract

Vol. 58, No. 1, pp. 15-30 (2007)

“The Covariance Structure of Earning and Hours Changes -The Case of Japanese households-”
Naohito Abe (Institute of Economic Research, Hitotsubashi University), Noriko Inakura (Graduate Student of Systems and Information Engineering, University of Tsukuba)

The paper investigates individual earnings and hours using Japanese panel data. We find that (1) the variance of income changes of Japanese households is approximately one-third of that of the US; (2) the autocovariance of income changes at first lag is approximately one half of the income variance; (3) the autocovariances of income changes at lags more that one year are negligible; and (4) the cross-covariances of changes in income and hours worked are very small. The decomposition of the variances into permanent shocks and measurement errors reveals that one-third of variations of income changes are due to permanent shocks.