Earnings Variability and Earnings Instability of Women and Men in Canada: How Do the 1990's Compare to the 1980's (Working Paper 25)
Abstract
It seems to be generally assumed that earnings instability has increased in the last decade
or so, as earnings inequality has widened, but is this indeed the case, and if so, to what degree? This
paper builds on earlier U.S. work to look at the total variance in individuals’ earnings with a focus on
the distinction between permanent earnings variation associated with factors such as human capital
investments or other persistent worker attributes, and transitory earnings variation or instability for a
given individual from one year to another. We find that there was an increase in overall earnings
variability, especially for men, but that the greatest part of this increase was driven by the permanent
component – that is, by a widening dispersion of (life-cycle) earnings differentials across workers. The
increased volatility of workers’ earnings about their life-cycle earnings profiles played a secondary
role in the overall increase in men’s earnings variability, whereas for women this effect was very small
or even worked in the opposite direction (depending on the particular age group). Patterns by age
and region are also investigated.