Turbulent Firms, Turbulent Wages?
Source: Federal Reserve Bank of New York
The authors find that rising earnings instability was responsible for one third to one half of the rise in wage inequality during the 1980s. These growing transitory fluctuations remain largely unexplained. To help fill this gap, this paper further documents the recent rise in transitory fluctuations in compensation and investigates its linkage to the concurrent rise in volatility of firm performance. Through controls and instrumental variable probes, they rule out straightforward compositional churning as an explanation for the link between firm sales and wage volatility.