Mariacristina De Nardi, Giulio Fella, Marike Knoef, Gonzalo Paz-Pardo, Raun van Ooijen, 06 November 2020

Understanding the source of fluctuations in earnings, and how workers insure themselves against those fluctuations, is key to evaluating labour laws. This column uses administrative data from the Netherlands to compare the role played by households to the tax and transfer system in mitigating shocks to individual earnings. It then compares those findings to data from the US – a country with a substantially smaller welfare state – and finds that hours, not wages, account for most of the variability in earnings for workers in the bottom two deciles of the earnings distribution.

CEPR Policy Research