Chapter 2 documents in administrative German social security data that the extent of occupational switching upon changing jobs is high, and that the decision to change occupations is of major relevance for realized wage changes. It develops a structural model in which workers optimally choose occupations in response to productivity shocks. The model is used to identify the role of occupational switching choices for productivity changes, and to quantify the utility gain from the option of occupational switching.
Chapter 3 develops a novel Generalized Method of Moments estimation approach for the relationship between idiosyncratic and aggregate labor income risk. In a decomposition of income changes into transitory and permanent shocks, it shows identification of their variance and skewness. In German survey data, the distribution of permanent shocks to gross earnings of males is more dispersed and more left-skewed in recessions. Households smooth transitory shocks; taxes and transfers further smooth these shocks and remove the cyclicality of permanent shocks.
Chapter 4 provides a comparative analysis of the United States, Germany, and Sweden. Using non-parametric methods, it documents that–in all three economies–downside risk is higher in recessions and the existing tax and transfer schedules are successful at reducing this cyclicality. The chapter finishes with an evaluation of the welfare gain coming from the insurance provided by the government on top of within-household insurance using an incomplete markets model with partial insurance against income fluctuations.
Chapter 5 sets up a real business cycle model with two production sectors and involuntary unemployment. Aggregate fluctuations are endogenously propagated asymmetrically to the two sectors. As a consequence, workers want to move across sectors in response to aggregate shocks, which is costly. These costs can generate costs of aggregate fluctuations, which exceed those in a frictionless economy
