Components--Earnings

Background

Annual earnings can be decomposed into weekly earnings rates, and weeks worked per year.  There is a distinct age profile to annual earnings.  They grow fastest at young ages, plateau, then start declining. The peak age of average earnings has been increasing in the past few decades.  In 1970, the peak was reached at the age of 40 whereas in 1995 it was reached at 51.

The growth in average annual earnings for people under the age of 25 has been decreasing during these decades.  In 1995, people under 25 had real average earnings that were smaller than those of their 1990 counterparts.  This may be due to a variety of factors such as people staying in school longer.

When constant dollar earnings are examined over successive years, it is easier to see the increase in earnings growth for the middle-aged population and the decline in earnings for young people.

LifePaths implementation

In LifePaths, each person is assigned a potential weekly earnings rate whether or not they are employed.  This potential weekly earnings rate is then combined with employment status to produce actual earnings.  Once a person starts a job, whether in paid work or in self-employment, LifePaths assigns weekly earnings in current dollars.  Earnings are derived differently for student work as opposed to career work.

Weekly earnings for non-students are derived using three separate sets of equations: wages and salaries, positive self-employment earnings, and negative self-employment earnings.  For the self-employed the first step is to decide whether or not this person is going to have positive or negative earnings.  Variables influencing earnings include, age, education level, field of study, sex, province of residence, and immigration status.  These variables can each independently influence the general level, dispersion and degree of asymmetry in simulated earnings distributions.

Weekly earnings are recalculated at the start of a new job as well as on job anniversaries.  They will also be recalculated whenever the variables influencing earnings (excluding age) change.  A correlation was calculated between a person's rank in the earnings distribution from one year to the next.

Student earnings are treated differently than career earnings.  The earnings equations are much simpler and depend on level of schooling and the time of year (summer or school year).  They are recalculated each September and at the beginning of the summer.  For now, only post-secondary students are eligible to receive student earnings in LifePaths.

Simulated biography illustrating earnings

Data sources

Weekly earnings rates were derived from the 1981, 1986, 1991, and 1996 censuses.  For years prior to 1980, the earnings rate was deflated using a factor derived from a consistent historical series of average weekly wage rates (industrial aggregate).  The historical wage rates were pieced together from Historical Statistics of Canada series E198 (1901-1922) and a series (1923-2000) obtained from the 25’th Annual Report of the Investment Practice Committee of the Canadian Institute of Actuaries.

The logit equation which decides whether a self-employed person will receive positive or negative earnings was derived using the 1996 census.

The correlation in the person's year to year ranking  in the earnings distribution was derived using the Longitudinal Administrative Databank (LAD).