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The Great Risk Shift? Income Volatility in an International Perspective

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  • Claudia M. Buch

Abstract

Weakening bargaining power of unions and the increasing integration of the world economy may affect the volatility of capital and labor incomes. This paper documents and explains changes in income volatility. Using a theoretical framework which builds distribution risk into a real business cycle model, hypotheses on the determinants of the relative volatility ofcapital and labor are derived. The model is tested using industry-level data. The data cover 11 industrialized countries, 22 manufacturing and services industries, and a maximum of 35 years. The paper has four main findings. First, the unconditional volatility of labor and capital incomes has declined, reflecting the decline in macroeconomic volatility. Second, the idiosyncratic component of income volatility has hardly changed over time. Third, crosssectional heterogeneity in the evolution of relative income volatilities is substantial. If anything, the labor incomes of high- and low-skilled workers have become more volatile in relative terms. Fourth, income volatility is related to variables measuring the bargaining power of workers. Trade openness has no significant impact.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2465.

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Date of creation: 2008
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Handle: RePEc:ces:ceswps:_2465

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Keywords: income volatility; distribution risk; real business cycles;

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  1. Shane T. Jensen & Stephen H. Shore, 2008. "Changes in the Distribution of Income Volatility," Papers 0808.1090, arXiv.org.
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  15. Jean-Pierre Danthine & John B. Donaldson & Paolo Siconolfi, 2005. "Distribution Risk and Equity Returns," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 05.10, Université de Lausanne, Faculté des HEC, DEEP.
  16. Gürtzgen, Nicole, 2005. "Rent-Sharing and Collective Bargaining Coverage: Evidence from Linked Employer-Employee Data," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 05-90, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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  20. Marco Terrones & M. Ayhan Kose & Eswar Prasad, 2007. "How Does Financial Globalization Affect Risk Sharing? Patterns and Channels," IMF Working Papers 07/238, International Monetary Fund.
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