Cyclical Labor Income Risk

Makoto Nakajima () and Vladimir Smirnyagin

No 22, Opportunity and Inclusive Growth Institute Working Papers from Federal Reserve Bank of Minneapolis

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 mutted, 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 (search for similar items in EconPapers)
JEL-codes: D31 E24 E32 H31 J31 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2019-08-05
New Economics Papers: this item is included in nep-mac
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Related works:
Working Paper: Cyclical Labor Income Risk (2019)
Working Paper: Cyclical Labor Income Risk (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmoi:0022

DOI: 10.21034/iwp.22

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