© Copyright 2000 by the Wyoming Department of Employment, Research & Planning


The Instability Index as a Measure of Labor Market Activity
by: Tony Glover , Senior Analyst and Richard Peters, Economist

"From the perspective of improving the performance of a training program, knowing what industries or employers with which to place a client could improve the client's likelihood of having a positive outcome with the labor market."

The Wage Records database is a collection of quarterly employee information from Unemployment Insurance (UI) covered employers.1 The data collected include: employee Social Security Number (SSN), UI tax account number of the employer and total wages paid to the employee. A typical set of records would look like Table 1.

From the information in Table 1, Research & Planning (R&P) can summarize the total wages paid to an individual in a given quarter and the number of employers the individual worked for. By combining four quarters of Wage Records, R&P generates summary statistics for total wages, number of employers and quarters worked for the year. Linking this file to other administrative databases can provide us with information about the industry of the employer, Employment Resources Centers utilization and demographic data of the individual as well as other characteristics.

Recently, R&P produced a series of Wyoming Labor Force Trends articles on turnover and labor market churning.2 This article incorporates several of the concepts discussed in that series and takes the process to the next logical step for training and education program assessment. By combining several years of Wage Records data, we can create a picture of how individuals interact with employers. Looking at how individuals interact with all their employers across time gives us a better understanding of labor market activity and how employers interact with labor supply.

Instability Index of the Individual

Consider an individual who works for the same employer in the first and second quarter of 1996 (96Q1 and 96Q2) and does not work for the employer in third quarter 1996 (96Q3). Relative to 96Q2, the individual has exited employment with that employer. Table 2 is a list of all possible scenarios an individual could have with an employer in a given quarter. The first three of the four categories are considered unstable interactions with an employer: Entry (E), Exit (X), and Both (Entry & Exit) - (B). The fourth variable, Continuous (C), is a stable situation where the individual maintains employment with the same employer for at least three consecutive quarters. As mentioned earlier, Wage Records captures individuals with more than one employer in a given quarter. Commonly an individual, who changes from one employer to another, would produce both an Exit from employer 1 and an Entry to employer 2. This is not necessarily an inefficient labor market activity as individuals often make competitive employment shifts for higher wages, increased benefits and as strategic moves to avoid layoff for other reasons. When several quarters of data are combined, this single incident of unstable activity is diluted by the individual's continuity of employment.

Table 3 presents some scenarios that occurred in ""The Flow of Labor in Wyoming: Department of Family Services, Division of Vocational Rehabilitation and Job Training Partnership Act Clients" in this issue of Trends. Six quarters of data are used to create the scenarios presented in Table 3, because the quarter prior and the quarter following the four-quarter period are needed to define the variables for the first and last quarters. SSN 1 and SSN 4 offer a good opportunity to contrast the labor market activity of individuals. During the four-quarter period, SSN 1 worked for four different employers. The longest duration of employment as captured in this snap shot was three quarters represented by Continuous (C) in first quarter 1996 (96Q1). During the three remaining quarters, the longest duration of employment was one quarter. In contrast, SSN 4 worked for only two employers during the period and left employment with one in fourth quarter 1996 (96Q4). A four-quarter summary of the four individual's labor market activity is presented in Table 4.

Table 4 presents the final step describing the individual's labor market activity. The instability index of the individual is the percent of an individual's labor market activity that is unstable. In formula terms it is simply the unstable (E + X + B) divided by all of the individual's interactions with the labor market (E + X + B + C). Taking the scenario presented earlier of the individual making a competitive employment shift, their instability index would be 40.0 percent for the four-quarter period. However, if we follow this process for two years during which they maintain employment, the individual's instability index would be 22.0 percent. The one shift in employment is quickly diluted by the individual's continuous attachment to one employer in the labor market over a longer period of time.

Instability Index of Employers and Industry

By grouping the number of Entries, Exits, Boths and Continuous variables by employer UI account number, it becomes possible to calculate an instability index for the employer. Table 5 summarizes the four quarters of 1996 for four hypothetical employers. Employer 1 and Employer 3 interact with labor differently, represented by the opposite ends of the stability scale. Employer 1 maintains a large base of continuous employees and has little turnover. Employer 3, in contrast, has a small base of continuously attached employees and a large number of unstable employees. The relevance of this information is in the placement of clients participating in Workforce Investment activities. Placing clients with employers having a low instability index could influence the clients' subsequent success in the labor market.

Grouping on the employer's respective industry created an instability index of industry. For the four quarters of 1996, Table 6 presents the results of this process and supports the findings of the earlier series in Trends on turnover.


From the perspective of improving the performance of a training program, knowing what industries or employers with which to place a client could improve the client's likelihood of having a positive outcome with the labor market. This offers two advantages from the performance assessment perspective. The benefit to the client would be independence, increased attachment to the labor market and increased earnings. The benefits to the program include a higher percentage of clients entering and maintaining employment and a higher return on investment.

For future analysis, we need to assess the external validity of the Index as a descriptive economic tool. Through historical examination using Wage Records and ES-2023 information, we can analyze related demographic variables and establish internal validity by comparing other means of economic assessment (i.e., unemployment rates, turnover rates). We may also develop models that estimate current and forecast future employment events.

1 Wyoming Wage Records 1992-1998: A Baseline Study, Research & Planning, Wyoming Department of Employment.
2 G. Lee Saathoff, "Separation from the Wyoming Labor Market," Wyoming Labor Force Trends, March 1999; Krista R. Shinkle, "Wyoming-Attached Workers: Living and Working in Wyoming," Trends, April 1999; Gregg Detweiler, "Industry Variations in Wyoming's Steady Workers," Trends, May 1999; Mike Evans, "Job Turnover and Hire Rates in Wyoming," Trends, June 1999; Valerie A. Davis, "Who Are Wyoming's New Hires?," Trends, July 1999.
3 ES-202 (Covered Employment and Wages) data are produced from covered employment and wage reports of employers subject to Unemployment Insurance (UI) coverage. UI typically does not cover self-employed, agricultural workers, unpaid family workers, domestic help, military personnel, railroad workers and non-profit workers.

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These pages designed by Gayle C. Edlin.
Last modified on by Valerie A. Davis.