Earnings Volatility Using Linked Administrative and Survey Data

The aim of this project is to reconcile the diverging trends in earnings volatility obtained from survey and administrative records using a restricted-access dataset that links the Current Population Survey Annual Social and Economic Supplement (ASEC) to the Social Security Detailed Earnings Records (DER). Understanding the trends in earnings volatility is important because of the possibility that changes in human capital, labor supply, and public policies may have shifted more idiosyncratic and business cycle risk onto families, which could have negative welfare consequences if it falls predominantly on those who face liquidity constraints and are less able smooth income shocks. Starting with the seminal work of Gottschalk and Moffitt (1994), the focus on volatility trends centered on identifying whether rising cross-sectional income inequality stemmed from transitory instability or from permanent shocks. The preponderance of evidence on volatility was obtained using data from the Panel Study of Income Dynamics (PSID), and the general consensus from the PSID was that transitory instability increased from the early 1970s until the mid 1980s, and stabilized until 2000, and permanent (“lifetime”) instability rose primarily in the 1980s (Gottschalk and Moffitt 1994, 2009; Haider 2001; Gundersen and Ziliak 2003; Hacker and Jacobs 2008; Keys 2008; Dynan, Elmendorf, and Sichel 2012; Shin and Solon 2013).