Cyclical Labor Income Risk

44 Pages Posted: 23 Oct 2019

See all articles by Makoto Nakajima

Makoto Nakajima

Federal Reserve Bank of Philadelphia

Vladimir Smirnyagin

University of Minnesota - Twin Cities

Multiple version iconThere are 2 versions of this paper

Date Written: 2019-09-16

Abstract

We investigate cyclicality of variance and skewness of household labor income risk using PSID data. There are five main findings. First, we find that head's labor income exhibits countercyclical variance and procyclical skewness. Second, the cyclicality of hourly wages is muted, suggesting that head's labor income risk is mainly coming from the volatility of hours. Third, younger households face stronger cyclicality of income volatility than older ones, although the level of volatility is lower for the younger ones. Fourth, while a second earner helps lower the level of skewness, it does not mitigate the volatility of household labor income risk. Meanwhile, government taxes and transfers are found to mitigate the level and cyclicality of labor income risk volatility. Finally, among heads with strong labor market attachment, the cyclicality of labor income volatility becomes weaker, while the cyclicality of skewness remains.

Keywords: Labor income risk, income inequality, business cycles

JEL Classification: D31, E24, E32, H31, J31

Suggested Citation

Nakajima, Makoto and Smirnyagin, Vladimir, Cyclical Labor Income Risk (2019-09-16). FRB of Philadelphia Working Paper No. 19-34. Available at SSRN: https://ssrn.com/abstract=3474358 or http://dx.doi.org/https://doi.org/10.21799/frbp.wp.2019.34

Makoto Nakajima (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Vladimir Smirnyagin

University of Minnesota - Twin Cities ( email )

Minneapolis, MN
United States

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