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Earnings volatility in America: Evidence from matched CPS

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  • Ziliak, James P.
  • Hardy, Bradley
  • Bollinger, Christopher
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    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 employment entry and exit. Our results show that earnings volatility among men increased by 15% 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.

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    Bibliographic Info

    Article provided by Elsevier in its journal Labour Economics.

    Volume (Year): 18 (2011)
    Issue (Month): 6 ()
    Pages: 742-754

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    Handle: RePEc:eee:labeco:v:18:y:2011:i:6:p:742-754

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    Web page: http://www.elsevier.com/locate/labeco

    Related research

    Keywords: Earnings; Instability; Variance decomposition; Employment;

    References

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    1. James P. Ziliak & Thomas J. Kniesner, 1998. "The Importance of Sample Attrition in Life Cycle Labor Supply Estimation," Journal of Human Resources, University of Wisconsin Press, vol. 33(2), pages 507-530.
    2. Christopher R. Bollinger & Barry T. Hirsch, 2006. "Match Bias from Earnings Imputation in the Current Population Survey: The Case of Imperfect Matching," Journal of Labor Economics, University of Chicago Press, vol. 24(3), pages 483-520, July.
    3. Thomas J. Kniesner & James P. Ziliak, 2000. "Tax Reform and Automatic Stabilization," Center for Policy Research Working Papers 21, Center for Policy Research, Maxwell School, Syracuse University.
    4. Peter Gottschalk & Robert Moffitt, 2009. "The Rising Instability of U.S. Earnings," Journal of Economic Perspectives, American Economic Association, vol. 23(4), pages 3-24, Fall.
    5. Sule Celik & Chinhui Juhn & Kristin McCue & Jesse Thompson, 2009. "Understanding Earnings Instability: How Important are Employment Fluctuations and Job Changes?," Working Papers 09-20, Center for Economic Studies, U.S. Census Bureau.
    6. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555 Elsevier.
    7. Richard V. Burkhauser & Shuaizhang Feng & Stephen P. Jenkins, 2009. "Using The P90-P10 Index To Measure U.S. Inequality Trends With Current Population Survey Data: A View From Inside The Census Bureau Vaults," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(1), pages 166-185, 03.
    8. Thomas J. Kniesner & James P. Z‎iliak, 2001. "Explicit Versus Implicit Income Insurance," Center for Policy Research Working Papers 38, Center for Policy Research, Maxwell School, Syracuse University.
    9. Chinhui Juhn & Kristin McCue, 2010. "Comparing Measures of Earnings Instability Based on Survey and Adminstrative Reports," Working Papers 10-15, Center for Economic Studies, U.S. Census Bureau.
    10. Haider, Steven J, 2001. "Earnings Instability and Earnings Inequality of Males in the United States: 1967-1991," Journal of Labor Economics, University of Chicago Press, vol. 19(4), pages 799-836, October.
    11. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    12. Thomas Lemieux, 2007. "The Changing Nature of Wage Inequality," NBER Working Papers 13523, National Bureau of Economic Research, Inc.
    13. Burkhauser, Richard V. & Butler, J. S. & Feng, Shuaizhang & Houtenville, Andrew J., 2004. "Long term trends in earnings inequality: what the CPS can tell us," Economics Letters, Elsevier, vol. 82(2), pages 295-299, February.
    14. Susan Dynarski & Jonathan Gruber, 1997. "Can Families Smooth Variable Earnings?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 229-303.
    15. Peter Gottschalk & Robert Moffitt, 1994. "The Growth of Earnings Instability in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 217-272.
    16. Bollinger, Christopher R. & Hirsch, Barry, 2010. "Is Earnings Nonresponse Ignorable?," IZA Discussion Papers 5347, Institute for the Study of Labor (IZA).
    17. Gary Solon & Robert Barsky & Jonathan A. Parker, 1992. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias," NBER Working Papers 4202, National Bureau of Economic Research, Inc.
    18. Burkhauser, Richard V. & Feng, Shuaizhang & Jenkins, Stephen P., 2007. "Using the P90/P10 index to measure US inquality trends with current population survey data: a view from inside the Census Bureau vaults," ISER Working Paper Series 2007-14, Institute for Social and Economic Research.
    19. Thomas Lemieux, 2006. "Increasing Residual Wage Inequality: Composition Effects, Noisy Data, or Rising Demand for Skill?," American Economic Review, American Economic Association, vol. 96(3), pages 461-498, June.
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    Citations

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    Cited by:
    1. Markus Jantti & Stephen P. Jenkins, 2014. "Income Mobility," Working Papers 319, ECINEQ, Society for the Study of Economic Inequality.
    2. Doris, Aedin & O'Neill, Donal & Sweetman, Olive, 2013. "Wage Flexibility and the Great Recession: The Response of the Irish Labour Market," IZA Discussion Papers 7787, Institute for the Study of Labor (IZA).
    3. Kässi, Otto, 2011. "Earnings Dynamics of Men and Women in Finland: Permanent Inequality versus Earnings Instability," MPRA Paper 34301, University Library of Munich, Germany.

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