IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Income Risk in Recessions

Listed author(s):
  • Serdar Ozkan

    (Federal Reserve Board)

  • Jae Song

    (Social Security Administration)

  • Fatih Guvenen

    (University of Minnesota)

This paper studies how recessions affect individual income risk. We employ a unique and confidential administrative data set with tens of millions of observations on individual earnings histories from the Social Security Administration records. We use a dataset that is a 10% random sample of the US population and covers the period from 1978 until 2010, encompassing the Great Recession of 2007--2009. We use these data to measure the effects of the recession on workers with different backgrounds. Our first set of findings concerns the cyclical nature of idiosyncratic shocks. We find that income shock variances are not countercyclical. Instead, it is the left skewness of shocks that is countercyclical. That is, during recessions, the upper end of the shock distribution collapses---i.e., large upward wage movements become less likely---whereas the bottom end expands---i.e., large drops in incomes become more likely. Moreover, the center of the shock distribution is very stable and moves very little compared to either tail. Second, we examine the systematic component of business cycle risk. We study three separate dimensions: whether the income loss during recession depends on (i) one's ranking in the lifetime income distribution, (ii) one's inherent sensitivity to business cycles as measured by the correlation of one's earnings with the cycle (excluding the recession under study), and (iii) one's income growth right before the recession. We find all three to matter for the fortunes of workers during recessions. In fact, for deep recessions (e.g., 1980--83 and 2008--2010), most of the rise in income inequality is due to this “factor structure†---i.e., the systematic divergence of incomes between groups of workers that are observationally different before the recession. To give one example, during the Great Recession, workers in the 20th percentile of the lifetime income distribution, on average, experienced a decline in their income that was nearly 10% more than the decline for workers who were in the 90th percentile of the distribution.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 266.

in new window

Date of creation: 2012
Handle: RePEc:red:sed012:266
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:red:sed012:266. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.