Earnings Volatility Across Groups and Time

John Sabelhaus and Jae Song , National Tax Journal 62 , 347-364 , June 2009.

Inferences about earnings volatility across groups and time depend on the underlying models of earnings dynamics, data sources, earnings concepts, and sampling strategies. In this paper we evaluate a model of earnings dynamics in which the permanence of shocks varies by age and education. This specification is consistent with observed earnings changes in administrative panel data, and also with the variance of earnings levels in multiple cross–section (synthetic panel) data. However, expanding the earnings concept to include self–employment and changing sampling strategy to include observations with minimal labor force attachment has first–order effects, and may help explain why some studies conclude that earnings volatility is rising.

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