Staff Working Paper No. 1,129
By Marco D’Amico and Martina Fazio
This paper uses rich, administrative-quality data on earnings in the UK from the Annual Survey of Hours and Earnings (ASHE) to provide a detailed analysis of income risk and its patterns across individuals and over time. We develop a model of income dynamics that accounts for the broader state of the economy and successfully captures key features of the UK earnings growth distribution, including: a cyclical variance, procyclical skewness (more frequent negative earnings shocks during recessions), and a distribution that combines sharp peaks with long, heavy tails. The model is simple enough to be integrated into broader macroeconomic frameworks, such as heterogeneous agent models, and could be used to support policy scenario analysis.
Modelling income risk dynamics in the UK: a parametric
approach
