Americans Face Growing Wage Instability

There has been a marked increase in the instability of male earnings in the United States over the last two decades, according to new research by Professor Robert Moffitt of Johns Hopkins University, published in the latest issue of the Economic Journal. But contrary to the popular view that this economic instability arises from the growing instability of employment, the largest part has occurred in the wages that workers receive.

Instability in individual incomes has become a major public issue in the United States. Most of the perceived instability has arisen from the instability of jobs. Reports of downsizing of companies, with accompanying layoffs of all skills of labour, as well as increases in competitiveness in the economy as a whole dominate public discussions. There is a common perception that there are no more ”lifetime jobs” in the country. Moffitt”s research documents the variability of earnings for prime-age US men. The chief findings are that:
· There has been a marked increase in the instability of male earnings in the United States, which began during the 1980s and has continued through the 1990s.
· The largest part of this instability has occurred in the wages that workers receive, rather than in the instability of jobs and employment itself. Even workers who have the same job for several years in a row have experienced an increase in the instability of their earnings.
· The increase in earnings instability has been greater for those with low earnings than those with high earnings, although even high earners have experienced some increase in earnings instability.
· Much of the variability is temporary, although ”temporary” means in this case about three years, which is the time it takes to recover from a temporary drop in earnings. But some of the variability is permanent and reflects changes in earnings from which workers never recover.
· Short-term mobility has increased because of the increase in variability, but longterm mobility has declined, the latter reflecting the increase in permanent shocks to earnings.

The research thus confirms the popular suspicion of an increase in economic instability even though it does not take the form of layoffs and employment i nstability, which most of the public has in mind.

”Trends in the Transitory Variance of Earnings in the United States” by Robert Moffitt is published in the March 2002 issue of the Economic Journal. Moffitt is at Johns Hopkins University, Baltimore.

Robert Moffitt

001-410-516-7611 | moffitt@jhu.edu