Turbulent Firms, Turbulent Wages?

Diego Comin, Erica L. Groshen, Bess Rabin

NBER Working Paper No. 12032
Issued in February 2006
NBER Program(s):Economic Fluctuations and Growth, Labor Studies

Has greater turbulence among firms fueled rising wage instability in the U.S.? Gottschalk and Moffitt ([1994]) 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 documented by Comin and Mulani [2005] among others. After examining models that explain the relationship between firm and wage volatility, we investigate the linkage in three complementary panel data sets, each with its own virtues and limitations: the Panel Study of Income Dynamics (detailed information on workers, but no information on employers), COMPUSTAT (detailed firm information, but only average wage and employment levels about workers), and the Federal Reserve Bank of Cleveland's Community Salary Survey (wages and employment for specific occupations for identified firms). We find complementary support for the hypothesis in all three data sets. We can rule out straightforward compositional churning as an explanation for the link to firm performance in high-frequency (over spans of 5 years) wage volatility, although not in more persistent fluctuations (between successive 5-year averages). We conclude that the rise in firm turbulence explains about sixty percent of the recent the rise in the high frequency (5-year) volatility of wages.

download in pdf format
   (387 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12032

Published: Comin, Diego, Erica Groshen and Bess Rabin. "Turbulent firms, turbulent wages?" Journal of Monetary Economics, vol. 56(1), pages 109-133, January 2009. citation courtesy of

Users who downloaded this paper also downloaded* these:
Comin and Philippon w11388 The Rise in Firm-Level Volatility: Causes and Consequences
Chavas, Hummels, and Wright Introduction to "The Economics of Food Price Volatility"
Moffitt and Gottschalk w16833 Trends in the Transitory Variance of Male Earnings in the U.S., 1970-2004
Comin and Philippon The Rise in Firm-Level Volatility: Causes and Consequences
Reder Wage Differentials: Theory and Measurement
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us