Interpreting cohort profiles of lifecycle earnings and volatility

Much of the research on earnings instability over the past three decades owes to the intellectual contributions of Robert Moffitt, who with his longtime collaborator, Peter Gottschalk, established the key result that the volatility of male earnings increased in the 1970s through the early 1980s, especially among the less educated, and while the instability of the 1970s was largely temporary in nat. [...] The first provides a simple and transparent summary measure, defined alternatively as the variance of the arc percent change and the variance of the change in log earnings. [...] Permanent and Transitory Variance The literature on permanent and transitory decompositions of earnings is rich, and, building on the seminal work of Gottschalk and Moffitt (1994), it has expanded greatly to incorporate persistence in shocks of varying duration, dependence in the variance of shocks by time and age, and latent heterogeneity in profiles of shocks. [...] In the early years of the sample, DER employment falls below ASEC employment, and this reflects the fact that the DER sample is tilted toward younger workers at the start of the sample relative to a random cross section of the population. [...] Permanent and Transitory Variance Over Time and the Lifecycle In this subsection we present our estimates of the persistence parameter in the transitory error component, along with the permanent and transitory variances from equations (7)-(8b).