This Time is Not so Different: Income Dynamics During the COVID-19 Recession
We use a UK employer-employee administrative earnings dataset to investigate the response of earnings and hours to business cycles. Exploiting our long panel of data from 1975 to 2020 we find wide heterogeneity in the exposure of different types of workers to aggregate shocks. Employees who are younger, male, lower-skilled, non-union, and working in smaller private sector firms show the largest earnings response to recessions. The qualitative patterns of earnings changes across workers observed in the COVID-19 recession are broadly as predicted using the previously estimated exposures and size of the GDP shock. This suggests the COVID-19 recession in terms of its impact responses was relatively similar to those that have gone before, but the GDP shock was far larger in absolute size. Compared to aggregate shocks, we find a relatively small role of firm-specific shocks, suggesting macro shocks play an outsized role in individual earnings dynamics.
We thank Luigi Pistaferri for comments and advice throughout. This work contains statistical data from ONS which is Crown Copyright. The use of the ONS statistical data in this work does not imply the endorsement of the ONS in relation to the interpretation or analysis of the statistical data. This work uses research datasets which may not exactly reproduce National Statistics aggregates. This work uses results originally presented in Bell, Bloom, and Blundell (2021). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.