The Department of Economics invites you to a Macro, Risk and Sustainability Seminar with Claudio Daminato, University of Lund.
A recent literature has shifted the focus from heterogeneity in labor income to heterogeneity in capital income in explaining features of the wealth distribution. We first document that a common unobserved component (which we interpret as the endowment of skills) drives persistent heterogeneity in both wealth returns and labor earnings. We embed these features of the joint wealth return-earnings process in a life-cycle model of consumer behavior and show that ignoring them would dramatically understate average returns for people at the top of the wealth distribution as well as the level and rise of consumption inequality over the life cycle.