NY Fed, Report: Workers’ Perceptions of Earnings Growth and Employment Risk

“In this paper we examine workers’ beliefs about their earnings growth and risk of layoff and quitting. While there exists a large body of work on observed earnings and employment volatility, little is known about worker’s perceptions of that variability. Knowledge of such beliefs, and how they evolve over the working life and business cycle is especially important for understanding consumer behavior. In addition to consumption and work decisions, beliefs about labor market uncertainty matter for precautionary savings and wealth accumulation, investment behavior, and demand and access to credit.”

“We find a gradual decline in average expected earnings growth and in earnings growth uncertainty over the working life, due in part to a gradual compression of individuals’ density forecasts of earnings growth as well as a convergence in the dispersion (across workers) in density means. In contrast, we find average layoff risks to be remarkably stable through the working life, while average quit probabilities show a U-shape pattern in age.”