The Volatility of Earnings: Evidence from High-Frequency Firm-Level Data

Andreas Georgiadis and Alan Manning

CEP Discussion Papers from Centre for Economic Performance, LSE

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.

Keywords: Wages; wage flexibility (search for similar items in EconPapers)
JEL-codes: E24 J30 (search for similar items in EconPapers)
Date: 2014-08
New Economics Papers: this item is included in nep-eur, nep-lab, nep-lma, nep-mac and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://cep.lse.ac.uk/pubs/download/dp1290.pdf (application/pdf)

Related works:
Working Paper: The volatility of earnings: evidence from high-frequency firm-level data (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp1290

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