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Earnings Volatility and its Consequences for Households

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  • Danielle Venn

Abstract

Many workers experience large fluctuations in before-tax labour earnings from one year to the next, due to changes in working hours, movements in and out of work and changes in pay. Youth entering the labour market and workers in non-standard jobs (such as temporary employment or self-employment) are the most likely to experience both large increases and large decreases in earnings. Other workers, such as those with a low level of education, poor health or approaching retirement, have only an increased chance of experiencing a large drop in earnings. It is often difficult for workers to predict changes in earnings and assess whether these are temporary or permanent. Additionally, private insurance and financial markets are poorly equipped to protect households against earnings fluctuations. Large drops in individual earnings are associated with an increased risk of household poverty and financial stress, with the impact largest in the poorest households. Tax and welfare systems can help buffer households against volatile earnings. Taxes play a prominent role in reducing the impact of earnings fluctuations among full-time workers, while transfers such as unemployment benefits and social assistance are more important when volatility is due to movements into or out of work. De nombreux travailleurs connaissent d'importantes fluctuations de leurs gains liés au travail, avant impôts, d'une année à l'autre, en raison de variations de leur temps de travail, des flux d'entrée et de sortie de l'emploi et des variations de rémunération. Les jeunes qui entrent sur le marché du travail et les travailleurs qui occupent des emplois atypiques (emplois temporaires ou travail indépendant, par exemple) sont les plus susceptibles de connaître aussi bien de fortes augmentations que de fortes diminutions de leurs gains. Les autres travailleurs, par exemple ceux qui ont un faible niveau de formation, sont en mauvaise santé ou approchent de la retraite ont uniquement une probabilité accrue de subir une forte diminution de leurs gains. Il est souvent difficile pour les travailleurs d'anticiper l'évolution de leurs gains et de savoir si les changements auront un caractère temporaire ou permanent. En outre, l'assurance privée et les marchés financiers sont mal équipés pour protéger les ménages contre les fluctuations de leurs gains. Les baisses importantes des gains individuels sont associées à un risque accru de pauvreté et de difficultés financières pour les ménages, en particulier pour les ménages les plus pauvres. Les systèmes fiscaux et de prestations peuvent contribuer à protéger les ménages contre la volatilité des gains. La fiscalité joue un rôle déterminant pour ce qui est de réduire l'impact des fluctuations des gains des travailleurs à plein temps, tandis que les transferts – tels que les allocations chômage et l'aide sociale – jouent un rôle plus important lorsque la volatilité des gains est due aux mouvements d'entrée et de sortie de l'emploi.

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File URL: http://dx.doi.org/10.1787/5kg3v00zgslw-en
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Social, Employment and Migration Working Papers with number 125.

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Date of creation: 07 Oct 2011
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Handle: RePEc:oec:elsaab:125-en

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Cited by:
  1. Lorenzo Cappellari & Marco Leonardi, 2007. "Earnings Instability and Tenure," DISCE - Quaderni dell'Istituto di Economia dell'Impresa e del Lavoro ieil0048, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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