Mobility and Instability in Canadian Earnings

A model of individual earnings dynamics that admits population heterogeneity with respect to both the level and the variability of individual earnings series is applied to an investigation of the distribution of earnings instability among mature male earners. The results tend to support Robert Gibrat's "law of proportional effect" rather than expectations based on dual labor-market theory or on the notion of compensating differentials for unemployment risk. An additional assessment of the amount of transitory variation in Canadian earnings data finds it to be small compared to the permanent component of earnings differences.