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Understanding Earnings Instability: How Important are Employment Fluctuations and Job Changes?

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  • Sule Celik
  • Chinhui Juhn
  • Kristin McCue
  • Jesse Thompson

Abstract

Using three panel datasets (the matched CPS, the SIPP, and the newly available Longitudinal Employment and Household Dynamics (LEHD) data), we examine trends in male earnings instability in recent decades. In contrast to several papers that find a recent upward trend in earnings instability using the PSID data, we find that earnings instability has been remarkably stable in the 1990s and the 2000s. We find that job changing rates remained relatively constant casting doubt on the importance of labor market “churning.” We find some evidence that earnings instability increased among job stayers which lends credence to the view that greater reliance on incentive pay increased instability of worker pay. We also find an offsetting decrease in earnings instability among job changers due largely to declining unemployment associated with job changes. One caveat to our findings is that we focus on men who have positive earnings in two adjacent years and thus ignore men who exit the labor force or re-enter after an extended period. Preliminary investigation suggests that ignoring these transitions understates the rise in earnings instability over the past two decades.

Suggested Citation

  • 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.
  • Handle: RePEc:cen:wpaper:09-20
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    File URL: https://www2.census.gov/ces/wp/2009/CES-WP-09-20.pdf
    File Function: First version, 2009
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    Cited by:

    1. Donggyun Shin, 2011. "Causes of Earnings Volatility and Risk Sharing," Korean Economic Review, Korean Economic Association, vol. 27, pages 253-272.
    2. Lorenzo Cappellari & Marco Leonardi, 2016. "Earnings Instability and Tenure," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(2), pages 202-234, April.
    3. Ziliak, James P. & Hardy, Bradley & Bollinger, Christopher, 2011. "Earnings volatility in America: Evidence from matched CPS," Labour Economics, Elsevier, vol. 18(6), pages 742-754.
    4. Shin, Donggyun & Solon, Gary, 2011. "Trends in men's earnings volatility: What does the Panel Study of Income Dynamics show?," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 973-982, August.
    5. Michael R. Strain, 2017. "Do volatile firms pay volatile earnings? Evidence from linked worker-firm data," Applied Economics, Taylor & Francis Journals, vol. 49(43), pages 4299-4309, September.

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