initial year to earnings interval j in the subsequent year. These percentages
sum to 100 across each row. In order to analyze the cyclical aspects of these
dynamics, one-year or short-run transition matrices for the cyclical peak
(1988-89) and cyclical trough (1991-92) years are presented in Table 7.4,5 In
the top row of the 1991-92 panel for women, the figures indicate that 83.9
per cent of the women who were in the very high earnings interval in 1991
stayed in that top interval in 1992, while only 3.6 per cent of the top 1991
female earners fell as far as two categories into the high-middle earnings
interval. Numbers (in bold) on the principal diagonal running from bottom left
to top right are the “staying probabilities” (ex-pressed in percentages).
Numbers above this diagonal indicate probabilities of moving down one or
more earnings intervals (“moving down prob-abilities”). Numbers below the
principal diagonal represent probabilities of moving up one or more intervals
(“moving up probabilities”).
The transition matrices thus show that the probability of staying in the
same earnings interval is the largest item in each row and that the probabilities
decline as one moves further away from the initiating interval. That is, it is
much less likely for a worker’s earnings to change dramatically from one year
to the next than to stay in the same or move to an adjacent interval. Recall,
however, that the intervals are fairly wide — either 25 or 50 per cent of the
median. This leaves quite a wide range for year-to-year earnings variation
(see footnote 2) without workers slipping out of their current earnings
intervals.
In all of the transition matrices in Table 7, the probability of staying in the
same earnings interval generally rises with the level of earnings. That is, high
earners are more likely to continue with their high earnings levels from
4Again, standard errors could also be calculated for the estimated transition
probabilities (Amemiya, 1985, ch. 11), but the underlying sample sizes in this paper are so
large they were judged not worth reporting.
5We focus on the 1990-92 recession because the data completely cover the period
(compared to the early eighties recession where our data only begin in 1982 and hence the
transition 1982-83) and because the labour market following the early nineties recession did
not really show significant tightening until 1997 (which is beyond the end year of our sample).
Cyclical Changes in Short-Run Earnings Mobility in Canada 469