The Evolution of Household Income Volatility

49 Pages Posted: 8 Sep 2012  

Karen E. Dynan

Harvard University; Peterson Institute for International Economics

Douglas W. Elmendorf

Harvard Kennedy School

Daniel E. Sichel

Wellesley College; NBER

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Date Written: July 15, 2012

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. The rise in the volatility of men’s earnings appears to reflect greater volatility in earnings per hour and in hours worked.

Keywords: income volatility, income dynamics, household income, household economic security

JEL Classification: B22, D31, E32, j39

Suggested Citation

Dynan, Karen E. and Elmendorf, Douglas W. and Sichel, Daniel E., The Evolution of Household Income Volatility (July 15, 2012). Available at SSRN: https://ssrn.com/abstract=2138990 or http://dx.doi.org/10.2139/ssrn.2138990

Karen E. Dynan

Harvard University ( email )

Littauer Center
Cambridge, MA 02138
United States

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

HOME PAGE: http://https://piie.com/experts/senior-research-staff/karen-dynan

Douglas W. Elmendorf

Harvard Kennedy School ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States

Daniel E. Sichel (Contact Author)

Wellesley College ( email )

106 Central St.
Wellesley, MA 02181
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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