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The volatility of earnings: evidence from high-frequency firm-level data

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  • Georgiadis, Andreas
  • Manning, Alan

Abstract

The first contribution of this paper is to use UK monthly firm-level data to show that there is a large amount of transitory volatility in firm-level average earnings from month to month. We conclude that this cannot all be explained away as the consequence of measurement error, composition effects or variation in remunerated hours i.e. we suggest this volatility is real. The second contribution of the paper is to argue that this volatility cannot be interpreted as high flexibility in the shadow cost of labour to employers because of sizeable frictions in the labour market. Indeed we point out that it is the existence of frictions that allow the volatility to exist. Consequently we argue that this volatility would be expected to have only small allocational consequences and that measures of base wages are more useful in drawing conclusions about wage flexibility.

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  • Georgiadis, Andreas & Manning, Alan, 2014. "The volatility of earnings: evidence from high-frequency firm-level data," LSE Research Online Documents on Economics 60443, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:60443
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    More about this item

    Keywords

    Wages; wage flexibility;

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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