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The evolution of household income volatility

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Author Info

  • Karen E. Dynan
  • Douglas W. Elmendorf
  • Daniel E. Sichel

Abstract

Using data from the PSID, we find that household income has become noticeably more volatile during the past thirty years. We estimate that the standard deviation of percent changes in household income rose one-fourth between the early 1970s and early 2000s. This widening in the distribution of percent changes is concentrated in the tails of the distribution, and especially in the lower tail: Changes between the 25th and 75th percentiles are almost the same size now as thirty years ago, but changes at the 10th percentile look substantially more negative. The boost in volatility occurred throughout the 1970s, 1980s, and 1990s, albeit not at a steady pace. Households' labor earnings and transfer payments have both become more volatile over time.

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File URL: http://www.federalreserve.gov/pubs/feds/2007/200761/200761abs.html
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File URL: http://www.federalreserve.gov/pubs/feds/2007/200761/200761pap.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2007-61.

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Date of creation: 2007
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Handle: RePEc:fip:fedgfe:2007-61

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Keywords: Income;

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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. 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.
  3. Lemieux, Thomas & MacLeod, W. Bentley & Parent, Daniel, 2007. "Performance Pay and Wage Inequality," IZA Discussion Papers 2850, Institute for the Study of Labor (IZA).
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