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IFS-STICERD Public Economics Seminar

Earnings Instability

Peter Ganong (University of Chicago)

Friday 17 May 2024 12:30 - 13:45

Many of our seminars and public events this year will continue as in person or as hybrid (online and in person) events. Please check our website listings and Twitter feed @STICERD_LSE for updates.

Unless otherwise specified, in-person seminars are open to the public.

Those unable to join the seminars in-person are welcome to participate via zoom if the event is hybrid.


About this event

We analyze monthly earnings volatility using administrative payroll data. While it is well-documented that wages are largely stable, we find that this wage stability does not translate into earnings stability for most U.S. workers. Even within stable employment relationships, and even when wages are constant, many workers nevertheless face substantial monthly earnings volatility. The standard deviation of monthly earnings changes is 28%, while the standard deviation of base wage changes is only 2%. There is substantial heterogeneity in this volatility, with much higher volatility for hourly workers than for salaried workers. This degree of volatility is far higher than what is implied by benchmark models of earnings processes which are calibrated to previously-available annual data and used as inputs for leading macro models. To understand the welfare consequences of pay volatility, we estimate the amenity value of volatility using worker quits in a model of a frictional labor market. We find that workers have a high willingness to pay to reduce earnings volatility. Overall, this analysis shows that high-frequency labor market shocks are an important source of risk and fragility which has been masked by past studies of annual earnings.

This seminar series is jointly organized by the IFS and STICERD.

IFS-STICERD Public Economics seminars are held on Wednesdays in term time at 12.30-13.45 IN PERSON at the IFS.

Seminar organisers: Stuart Adam (IFS), Monica Costa Dias (IFS), Xavier Jaravel (LSE), Camille Landais (LSE), Attila Lindner (UCL), Joana Naritomi (LSE), and Johannes Spinnewijn (LSE).

For further information please contact Peter Levell: peter_l@ifs.org.uk .

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