This paper provides an empirical analysis of individual earnings using data from the Encuesta Suplementaria de Ingresos. We find that the predictable component of income is hump-shaped over the life-cycle, and that there are strong education effects. The unpredictable component of income can be described by a very persistent permanent shock and a transitory shock. Our estimates are built from a panel of cohorts, so we use US data from the PSID to provide a magnitude for the underestimation of the estimated variances. Surprisingly, we find that the variance of the permanent shock is almost 4 times smaller in Chile than in the US, a result, perhaps, of the relative rigidity of the Chilean labor market.

Cristóbal Huneeus

Andrea Repetto