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date: 07 October 2022

Racial Inequality Across Income Volatility and Employmentlocked

Racial Inequality Across Income Volatility and Employmentlocked

  • Michael CarrMichael CarrDepartment of Economics, University of Massachusetts at Boston
  •  and Bradley L. HardyBradley L. HardyMcCourt School of Public Policy, Georgetown University

Summary

Volatility is an under-explored facet of economic insecurity, and it further helps to characterize otherwise omitted nuance in the economic situation facing many socioeconomically disadvantaged groups. Defined as a measure of short-run intragenerational mobility, standard measures of volatility leverage panel data in order to estimate higher moments of the growth rate of earnings or income, most often as variance transformations. Broadly, volatility can arise from one of two sources: instability in earnings among the continuously employed due to variable hours, hourly earnings, or salary changes; and/or instability in employment. The current literature shows that while both sources play an important role in the level of volatility for both men and women, trends are similar whether or not employment instability is accounted for, with overall declines in volatility for women and a largely flat trend for men over the last 40 years. The overall flat trend in volatility for men does seem at odds with other evidence that shows falling labor force participation for working-age men, and for Black men in particular. The link between these two processes—earnings changes over short periods of time and weekly or monthly snapshots of employment and labor force participation—remains largely absent from the literature because the most commonly used panel data sets are unable to capture within-year fluctuations in employment instability. Whether declining labor force participation for men increases or decreases volatility depends on whether there is a bifurcation in employment where some men are consistently employed over longer time horizons and some are not employed at all, or if declines in labor force participation at a point in time reflect increasing instability in employment over time. If the latter is true, then volatility could increase and could result in notably different trends in volatility over time by both race and gender.

Subjects

  • Labor and Demographic Economics

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