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Earnings Dynamics and Its Intergenerational Transmission: Evidence from Norway

Using administrative data from Norway, we first present stylized facts on labor earnings dynamics between 1993 and 2017 and its heterogeneity across narrow population groups. We then investigate the parents' role in children's income dynamics—the intergenerational transmission of income dynamics. We find that children of high-income, high-wealth fathers enjoy steeper income growth over the life cycle and face more volatile but more positively skewed income changes, suggesting that they are more likely to pursue high-return, high-risk careers. Children of poorer fathers also face more volatile incomes, but theirs grow more gradually and are more left skewed. Furthermore, the income dynamics of fathers and children are strongly correlated. In particular, children of fathers with steeper life-cycle income growth, more volatile incomes, or higher downside risk also have income streams of similar properties. We also confirm that fathers' significant role in workers' income dynamics is not simply spurious because of omitted variables, such as workers' own permanent income. These findings shed new light on the determinants of intergenerational mobility.

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https://doi.org/10.20955/wp.2021.015