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The Evolution of Household Income Volatility

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  • Dynan Karen

    ()
    (Brookings Institution)

  • Elmendorf Douglas

    ()
    (Congressional Budget Office)

  • Sichel Daniel

    ()
    (Wellesley College)

Abstract

Using a representative longitudinal survey of U.S. households, we find that household income became noticeably more volatile between the early 1970s and the late 2000s despite the moderation seen in aggregate economic activity during this period. We estimate that the standard deviation of percent changes in household income rose about 30 percent between 1971 and 2008. This widening in the distribution of percent changes was concentrated in the tails. The share of households experiencing a 50 percent plunge in income over a two-year period climbed from about 7 percent in the early 1970s to more than 12 percent in the early 2000s before retreating to 10 percent in the run-up to the Great Recession. Households’ labor earnings and transfer payments have both become more volatile over time. As best we can tell, the rise in the volatility of men’s earnings appears to owe both to greater volatility in earnings per hour and in hours worked.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 12 (2012)
Issue (Month): 2 (December)
Pages: 1-42

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Handle: RePEc:bpj:bejeap:v:12:y:2012:i:2:p:1-42:n:3

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  1. Douglas Holtz-Eakin & Harvey S. Rosen & Robert Weathers, 2000. "Horatio Alger Meets the Mobility Tables," NBER Working Papers 7619, National Bureau of Economic Research, Inc.
  2. Thomas Lemieux & W. Bentley Macleod & Daniel Parent, 2006. "Performance Pay And Wage Inequality," Departmental Working Papers 2006-08, McGill University, Department of Economics.
  3. Steven J. Davis & John Haltiwanger & Ron Jarmin & Javier Miranda, 2006. "Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms," NBER Working Papers 12354, National Bureau of Economic Research, Inc.
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  1. Do U.S. Households Benefit from the Great Moderation?
    by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2014-08-13 19:17:41
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