Skewed Idiosyncratic Income Risk over the Business Cycle: Sources and Insurance
- (pp. 207-42)
Abstract
We provide new evidence on business cycle fluctuations in skewed labor income risk in the United States, Germany, Sweden, and France. We document four results. First, in all countries, the skewness of individual income growth is strongly procyclical, whereas its variance is flat and acyclical. Second, this result also holds for continuously employed, full-time workers, indicating that the hours margin is not the main driver; additional analyses of hours and wages confirm that both margins are important. Third, within-household smoothing does not seem effective at mitigating skewness fluctuations. Fourth, tax-and-transfer policies blunt some of the largest declines in incomes, reducing procyclical fluctuations in skewness.Citation
Busch, Christopher, David Domeij, Fatih Guvenen, and Rocio Madera. 2022. "Skewed Idiosyncratic Income Risk over the Business Cycle: Sources and Insurance." American Economic Journal: Macroeconomics, 14 (2): 207-42. DOI: 10.1257/mac.20190019Additional Materials
JEL Classification
- E23 Macroeconomics: Production
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- E32 Business Fluctuations; Cycles
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
- I38 Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs
- J22 Time Allocation and Labor Supply
- J31 Wage Level and Structure; Wage Differentials
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