Cyclical Changes in Short-Run Earnings Mobility in Canada, 1982-1996



across all age groups, and the general cyclical pattern for women as a whole
(in Table 1 and illustrated in Figure 2) also holds across all age groups, except
for entry age women whose pattern resembles more that of entry age men.
The strength of the cyclical effects, though, differs across age groups, with
the strongest shifts generally occurring among entry and younger workers.

Cyclical patterns in polarization rates and distributional shifts by age
group are examined in Beach and Finnie (2001). Polarization rates increase in
recessions across all age/sex groups. Entry and younger workers of both sex
show the strongest sensitivity to unemployment rate changes, while older
workers show generally the weakest effects. The cyclical pattern of distribu-
tional shifts (both in the raw data and the net unemployment rate effects)
across all age groups for each gender mirrors that for the gender as a whole
(with the one exception of entry-age women workers). But the strength of the
cyclical effects differs across age groups with typically the strongest effects
occurring among entry and younger workers.

Cyclical Effects on Earnings Mobility

So far the analysis in this paper has operated as if we simply had a series of
large annual cross-sections of data. We now exploit the longitudinal aspect of
the LAD file in order to see how workers move about the earnings
distribution from one year to the next. This allows us to see better where
workers were coming from or went when changes occurred in earnings
interval shares and how these earnings dynamics are related to the business
cycle. As Beach and Finnie (2000) show, the underlying earnings transition
probabilities can be viewed as the basic primitives driving the observed
changes in the cross-sectional distribution of workers in the earnings
distribution.

Transition Matrices and Earnings Mobility Measures

The principal tool of analysis underlying the dynamic work in this paper is the
transition matrix. This provides a general, flexible, data-based approach to the
study of earnings mobility (Atkinson
et al., 1992). This is a two-dimensional
array of earnings intervals (EIs) for an initial year down the left-hand side and
of earnings intervals for a subsequent year along the top, and whose elements
indicate the percentages of individuals moving from earnings interval i in the

468


Charles M. Beach and Ross Finnie



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