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Trends in Earnings Variability over the Past 20 Years [i] (April 2007)

handle is hein.congrec/cbo0962 and id is 1 raw text is: CONGRESSIONAL BUDGET OFFICE Peter R. Orszag, Director ULS. Congress Washingrton, DC 20515 April 17, 2007 The Honorable Charles E. Schumer Chairman Joint Economic Committee United States Senate Washington, D.C. 20510 The Honorable Jim Webb Joint Economic Committee United States Senate Washington, D.C. 20510 Dear Senators: In response to your request, the Congressional Budget Office (CBO) is analyzing the extent to which workers' earnings and family incomes vary from year to year and whether that variability has changed over the past 20 years. CBO's analysis of lifetime earnings patterns is a key input into its projections for Social Security and Medicare, because revenues and outlays are directly tied to individual workers' earnings through tax and benefit formulas. This letter reports some initial findings from CBO's work, which focuses on workers' earnings. CBO intends to carry out additional research in this area for the purpose of studying earnings patterns for long-term Social Security and Medicare modeling, including examining trends in family earnings and income variability, and will issue a final report when that analysis is complete. The analysis described in the attachment to this letter is based on data from the Social Security Administration's Continuous Work History Sample from 1980 to 2003. Those administrative data are supplemented with survey data from the 2001 panel of the U.S. Census Bureau's Survey of Income and Program Participation. Those sources provide the most current data available with which CBO can conduct its analysis. The major findings from CBO's analysis to date are the following: 0 A significant number of workers experience substantial variability in their total wage earnings from year to year. About one-in-five workers saw their earnings fall by more than 25 percent between 2002 and 2003, and about one-in-seven saw their earnings fall by more than 50 percent. Roughly the same shares of workers experienced increases in earnings of 25 percent or 50 percent. www cbo ov

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