Earnings volatility in America: Evidence from matched CPS

Abstract

Abstract:We offer new evidence on earnings volatility of men and women in the United States over the past four decades by using matched data from the March Current Population Survey.We construct a measure of total volatility that encompasses both permanent and transitory instability, and that admits employment transitions and losses from self employment. We also present a detailed decomposition of earnings volatility to account for changing shares in employment probabilities, conditional variances of continuous workers, and conditional mean variances from labor-force entry and exit. Our results show that earnings volatility among men increased by 15 percent from the early 1970s to mid 1980s, while women's volatility fell, and each stabilized thereafter. However, this pooled series masks important heterogeneity in volatility levels and trends across education groups and marital status. We find that men's earnings volatility is increasingly accounted for by employment transitions, especially exits, while the share of women's volatility accounted for by continuous workers rose, each of which highlights the importance of allowing for periods of non-work in volatility studies. 1Whether and to what extent the volatility of earnings and income have increased in the United States in recent decades has been the subject of much research and debate Moffitt 1994, 2009;Dynarski and Gruber 1997;Haider 2001; Kniesner and Ziliak 2002a,b;Gundersen and Ziliak 2003;Dahl, DeLeire, and Schwabish 2008;Dynan, Elmendorf, and Sichel 2008;Hacker and Jacobs 2008; Jensen and Shore 2008; Keys 2008;Shin and Solon 2008;Winship 2009). Starting with Gottschalk and Moffitt (1994), the focus on volatility trends centered on identifying whether rising cross-sectional income inequality stemmed in part from transitory instability, while in more recent years interest in volatility expanded to concerns raised by Hacker and Jacobs (2008), among others, that there have been fundamental changes in the labor market that shifted more idiosyncratic and business cycle risk onto individuals. Whereas the preponderance of evidence on inequality in the United States is based on cross-section data from the Current Population Survey (CPS), with few exceptions the evidence on earnings and income volatility comes almost exclusively from longitudinal data in the Panel Study of Income Dynamics (Gittleman and Joyce 1996;Cameron and Tracy 1998;Dahl, et al. 2008;Celik, et al. 2009; Juhn and McCue 2010;Winship 2011). In this paper we offer new evidence on earnings volatility over the past four decades by exploiting the longitudinal dimension of the CPS to match individuals across surveys.The use of the PSID for estimates of volatility owes in part to the literature's early emphasis on decomposing volatility into its permanent and transitory components (Gottschalk and Moffitt 1994). This decomposition is illustrative because it permits identification of temporary deviations of earnings from long-term trends, as well as identification of structural changes in long-term tre...

Wage flexibility and the great recession: the response of the Irish labour market

“…We address this by conducting a supplementary analysis of a balanced panel of job stayers, the results of which we discuss later. Ziliak et al (2011), we calculate percentage earnings changes using the arc (midpoint) per cent change method; the key advantage of this method is that it is symmetric in gains and losses. The picture that emerges is of three distinct periodspre-crisis, crisis onset and post-crisis stagnation.…”

Does Welfare Inhibit Success? The Long-Term Effects of Removing Low-Income Youth from the Disability Rolls

“…There is a rich literature documenting earnings and household income volatility in the United States, with mixed evidence as to whether volatility has increased or decreased in recent decades (Dahl, DeLeire, and Schwabish 2011;Ziliak, Hardy, and Bollinger 2011;Dynan, Elmendorf, and Sichel 2012;Hardy and Ziliak 2014). Income volatility is higher for low-income households because of larger earnings fluctuations (Hardy and Ziliak 2014;Morduch and Schneider 2014).…”

An Analysis of Central European Tax Systems Using Statistical Simulation

“…Ze studií, které tato data používají a odhadují z nich (v různých souvislostech a pomocí různých metod) individuální volatilitu příjmů (Ziliak et al, 2010;Jensen a Shore, 2015;Feigenbaum a Li, 2016), je však možné odvodit σ v rozpětí přibližně 25-35 % 7 . Na první pohled zaráží značný rozpor mezi výsledky uvedených úvah.…”