Firm and market shocks, wage risk, and the protection provided by government institutions: evidence from IRS tax data
Researchers and policymakers are increasingly discovering the important role of firms when it comes to earnings. Shocks to the productivity of firms or industry—for example, a firm closing, or an industry shrinking—appear to be an important contributor to workers’ earnings and employment volatility. This project will investigate how different shocks to firms and the market are passed onto employees of that firm and, importantly, the effectiveness of U.S. social insurance programs—for example, unemployment insurance, Social Security programs, etc.—in buffering households against shocks to their incomes. Whereas most of the work on these issues to date is limited to either looking at workers independently from firms or industries, or at shocks that result in substantial displacement, the researchers will utilize IRS data that allow them to link individuals to the firms that employ them, opening a rich field of research questions that it has not previously been possible to answer. Research findings will likely provide details to help us understand where problems may be greatest, or provide new evidence on places where institutions are more successful in mitigating negative shocks.