What Do We Know About Income and Earnings Volatility?

Abstract

We first review research about income and earnings volatility and second provide new UK evidence about the latter using high-quality administrative record data. The USA stands out as a high-volatility country relative to the UK and other high-income countries, but volatility levels have remained constant in these countries recently. Almost all research has considered volatility from an annual perspective whereas we provide new evidence about month-to-month earnings volatility. There is a distinct within-year seasonal pattern to volatility, and volatility is highest for the top and bottom tenths of earners. High earnings volatility among top earners and its seasonality reflect pay bonus patterns whereas, for low earners, the instability of hours including zero-hours contracts likely plays important roles. Our findings have relevance to the design of cash transfer support in the UK because the monthly reference periods it uses do not align with many earners' pay periods.