Modeling Earnings Dynamics

In this paper the author uses indirect inference to estimate a joint model of earnings, employment, job changes, wage rates, and work hours over a career. The model incorporates duration dependence in several variables, multiple sources of unobserved heterogeneity, job-specific error components in both wages and hours, and measurement error. The author uses the model to address a number of important questions in labor economics, including the source of the experience profile of wages, the response of job changes to outside wage offers, and the effects of seniority on job changes.