Decomposing Trends in Income Volatility: The 'Wild Ride' at the Top and Bottom

18 Pages Posted: 20 Nov 2013

See all articles by Bradley Hardy

Bradley Hardy

American University

James P. Ziliak

University of Kentucky - Department of Economics

Date Written: January 2014

Abstract

We use 2‐year panels from the Current Population Survey to provide a detailed accounting of family income volatility from 1980 to 2009. Volatility doubled overall, and the increase was most pronounced among the top 1% of the income distribution, but in any given year the level of volatility among the bottom 10% exceeds that of the top. The increased volatility comes from higher instability of head and spouse earnings, other nonlabor income, and from reduced covariance between these income sources with the tax system. This suggests that current tax policy is less effective in mitigating income shocks than previous decades.

JEL Classification: J31, I30

Suggested Citation

Hardy, Bradley and Ziliak, James P., Decomposing Trends in Income Volatility: The 'Wild Ride' at the Top and Bottom (January 2014). Economic Inquiry, Vol. 52, Issue 1, pp. 459-476, 2014, Available at SSRN: https://ssrn.com/abstract=2357244 or http://dx.doi.org/10.1111/ecin.12044

Bradley Hardy

American University ( email )

4400 Massachusetts Ave, NW
Washington, DC 20016
United States

James P. Ziliak

University of Kentucky - Department of Economics ( email )

Lexington, KY 40506
United States

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