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Estimating Trends in Male Earnings Volatility with the Panel Study of Income Dynamics

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  • Robert A. Moffitt
  • Sisi Zhang

Abstract

The possible existence of trends in volatility in the U.S. labor market has been an important issue in both labor economics and macroeconomics. The Panel Study of Income Dynamics (PSID) has been the workhorse data set used to estimate trends in earnings volatility at the individual level. Studies using the PSID have generally shown upward trends in volatility. However, trends estimated with the PSID conflict with those reported from some other survey and administrative data sets, many of which have shown flat or declining trends. This paper, which is part of a group project attempting to reconcile estimates across different data sets, presents new estimates of trends in male earnings volatility in the U.S. from 1970 to 2016 from the PSID, and addresses a number of concerns with the data that might lead its estimates to differ from those obtained in other data sets. The analysis shows that upward trends in male earnings volatility were concentrated in the 1970s and 1980s, and that trends after 1990 have been modest or even non-existent, depending on whether volatility is expected to return to its mid-2000s level after jumping up in the Great Recession. Thus, volatility trends in the PSID are roughly consistent with those studies using other data sets which find flat volatility trends in the last three decades. Examinations of potential biases from unit nonresponse (i.e., attrition), item nonresponse (i.e., don’t knows and refusals) and resulting imputation, and from a number of other features of the PSID that might affect its population representativeness show no evidence of significant bias from any of these factors. However, suggestive evidence that declines in volatility estimated in studies using administrative data may be a result of a larger left tail of earnings and of problematic trimming procedures used in those studies.

Suggested Citation

  • Robert A. Moffitt & Sisi Zhang, 2020. "Estimating Trends in Male Earnings Volatility with the Panel Study of Income Dynamics," NBER Working Papers 27674, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:27674
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    Cited by:

    1. John Carter Braxton & Kyle F. Herkenhoff & Jonathan Rothbaum & Lawrence Schmidt, 2021. "Changing Income Risk across the US Skill Distribution: Evidence from a Generalized Kalman Filter," Opportunity and Inclusive Growth Institute Working Papers 55, Federal Reserve Bank of Minneapolis.
    2. Kevin L. McKinney & John M. Abowd, 2020. "Male Earnings Volatility in LEHD before, during, and after the Great Recession," Papers 2008.00253, arXiv.org, revised Feb 2022.
    3. James P. Ziliak & Charles Hokayem & Christopher R. Bollinger, 2020. "Trends in Earnings Volatility using Linked Administrative and Survey Data," Working Papers 20-24, Center for Economic Studies, U.S. Census Bureau.
    4. Edmund S. Crawley & Martin Holm & Håkon Tretvoll, 2022. "A Parsimonious Model of Idiosyncratic Income," Finance and Economics Discussion Series 2022-026, Board of Governors of the Federal Reserve System (U.S.).
    5. Michael D. Carr & Robert A. Moffitt & Emily E. Wiemers, 2020. "Reconciling Trends in Volatility: Evidence from the SIPP Survey and Administrative Data," NBER Working Papers 27672, National Bureau of Economic Research, Inc.
    6. Manning, Alan & Mazeine, Graham, 2022. "Subjective job insecurity and the rise of the precariat: evidence from the United Kingdom, Germany, and the United States," LSE Research Online Documents on Economics 114258, London School of Economics and Political Science, LSE Library.
    7. Carr, Michael D. & Wiemers, Emily E., 2021. "The role of low earnings in differing trends in male earnings volatility," Economics Letters, Elsevier, vol. 199(C).

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    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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