The European Central Bank has published a working paper using subjective expectations from the Federal Reserve Bank of New York’s Survey of Consumer Expectations to estimate U.S. earnings, employment and job-transition dynamics. The paper finds that productivity shocks are less risky and persistent than earlier research suggests, while differences in worker ability and employer-match quality account for more of the observed dispersion in earnings. Estimated productivity persistence is 0.511 for men and 0.448 for women, while employer-match quality shows limited persistence after a job change. Simulations for men indicate that a conventional model overstates earnings persistence, producing an estimate of 0.975 compared with 0.461 after controlling for individual and job-specific effects. Earnings volatility similarly falls from about 13% to 7.7% and becomes broadly flat across the earnings distribution once heterogeneity is removed, indicating that much measured income risk is associated with job transitions rather than persistent individual productivity shocks. Higher wage offers also materially increase the probability that unemployed workers accept jobs and employed workers switch employers.
European Central Bank2026-07-30
European Central Bank working paper finds job transitions and heterogeneity drive measured earnings risk
A European Central Bank working paper finds that job transitions and differences in worker ability and employer-match quality explain much of measured earnings persistence and volatility. After accounting for this heterogeneity, estimated productivity shocks are smaller and less persistent, while earnings volatility falls and becomes broadly flat across the earnings distribution.