Skewed Idiosyncratic Income Risk over the Business Cycle: Sources and Insurance

Christopher Busch, David Domeij, Fatih Guvenen and Rocio Madera

American Economic Journal: Macroeconomics, 2022, vol. 14, issue 2, 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.

JEL-codes: E23 E24 E32 H24 I38 J22 J31 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (22)

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Working Paper: Skewed Idiosyncratic Income Risk over the Business Cycle: Sources and Insurance (2020)
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DOI: 10.1257/mac.20190019

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