The Evolution of Household Income Volatility

48 Pages Posted: 4 Dec 2007

See all articles by Daniel E. Sichel

Daniel E. Sichel

Wellesley College; NBER

Karen E. Dynan

Harvard University; Peterson Institute for International Economics

Douglas W. Elmendorf

Harvard Kennedy School

Multiple version iconThere are 2 versions of this paper

Date Written: November 2007

Abstract

Using data from the PSID, we find that household income has become noticeably more volatile during the past thirty years. We estimate that the standard deviation of percent changes in household income rose one-fourth between the early 1970s and early 2000s. This widening in the distribution of percent changes is concentrated in the tails of the distribution, and especially in the lower tail: Changes between the 25th and 75th percentiles are almost the same size now as thirty years ago, but changes at the 10th percentile look substantially more negative. The boost in volatility occurred throughout the 1970s, 1980s, and 1990s, albeit not at a steady pace. Households' labor earnings and transfer payments have both become more volatile over time.

Keywords: Household income, labor income, volatility, PSID, Great Moderation

JEL Classification: E20, D12, J30

Suggested Citation

Sichel, Daniel E. and Dynan, Karen E. and Elmendorf, Douglas W., The Evolution of Household Income Volatility (November 2007). FEDS Working Paper No. 2007-61, Available at SSRN: https://ssrn.com/abstract=1051141 or http://dx.doi.org/10.2139/ssrn.1051141

Daniel E. Sichel

Wellesley College ( email )

106 Central St.
Wellesley, MA 02181
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Karen E. Dynan (Contact Author)

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

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