The Instability of Family Earnings and Family Income in Canada, 1986-1991 and 1996-2001

Abstract

We investigate how family earnings instability evolved between the late 1980s and the late 1990s and how family income instability varies across segments of the (family-level) earnings distribution. We uncover four key patterns. First, among the subset of families who were intact over the 1982­91 and 1992­2001 periods, family earnings instability changed little between the late 1980s and the late 1990s. Second, the dispersion of families' permanent earnings became much more unequal during that period. Third, families who were in the bottom tertile of the (age-specific) earnings distribution in 1992 to 1995 had, during the 1996­2001 period, much more unstable market income than their counterparts in the top tertile. Fourth, among families with husbands aged under 45, the tax and transfer system, during the 1996­2001 period, eliminated at least two-thirds (and up to all) of the differences in instability (measured in terms of proportional income gains/losses) in family market income that were observed during that period between families in the bottom tertile and those in the top tertile. This finding highlights the key stabilization role played by the tax and transfer system, a feature that received relatively little attention during the 1990s when (UI) EI and Social Assistance were reformed.