Stable firms and unstable wages

Abstract

In this work I study recent developments in firm employment and earnings instability in the US economy over the last 30 years. Despite the decline in aggregate and firm level volatility, earnings instability has increased steadily for job stayers since the late seventies. I measure and model these phenomena as a result of a decline in labor market institutions that compress wage volatility, and an increase in the incidence of compensation schemes that attach wages to worker performance.