Earnings Risk in the Household: Evidence from Millions of U.S. Tax Returns

Abstract

Using detailed IRS administrative data on millions of households, we find that households effectively insure against much of the risk facing primary earners. We show that households face less risk than males alone, and households face roughly half the countercyclical risk increase. As a result of these risk differences, household certainty equivalent earnings are 19% higher than for males alone, and household certainty equivalent earnings fall by about half as much during recessions. To facilitate related research, we make available the aggregated data used in our analysis.

Keywords: earnings risk, idiosyncratic earnings shocks, household, skewness, added worker effect

JEL Classification: E32, E24, E44, J21, J31