The Nature of Countercyclical Income Risk

By Fatih Guvenen, Serdar Ozkan, Jae Song. Journal of Political Economy, 2014

485 citations recorded by the source corpus.

We study business cycle variation in individual earnings risk using a confidential and very large data set from the US Social Security Administration. Contrary to past research, we find that the variance of idiosyncratic shocks is not countercyclical. Instead, it is the left-skewness of shocks that is strongly countercyclical: during recessions, large upward earnings movements become less likely, whereas large drops in earnings become more likely. Second, we find that the fortunes during recessions are predictable by observable characteristics before the recession. Finally, the cyclicality of earnings risk is dramatically different for the top 1 percent compared with the rest of the population.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/97ddd4c1f729624aeb45cc0ebf293049ddc04e68

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Citations in the corpus

Innocent Bystanders? Monetary Policy and Inequality in the U.S. (2012, unknown): “However, the view that monetary policy may have played a role in accounting for changes in inequality is shared by more than just Ron Paul followers.”
Mortgage Design in an Equilibrium Model of the Housing Market (2018, unknown): “To do so, we fit a mixture of normals to the histogram underlying Figure 12 in Guvenen, Ozkan, and Song (2014).”
Stock Market Wealth and the Real Economy: A Local Labor Market Approach (2019, result): “While our baseline specification already includes a linear interaction of stock wealth/income and aggregate labor earnings, previous work has found especially high sensitivity among very high earners (Guvenen et al., 2014).”
Aggregate Nominal Wage Adjustments: New Evidence from Administrative Payroll Data (2019, methodology): “Additionally, we compare annual earnings dynamics in our ADP sample for people who remain continuously employed with the same firm for two years to the earnings dynamics in Guvenen et al. (2014) for a similarly defined sample.”
The Dynamics of Inequality (2016, unknown): “That an increase in the variance of permanent earnings has contributed to the rise of inequality observed in the data has been argued by Moffitt and Gottschalk (1995), Haider (2001), Kopczuk, Saez, and Song (2010) and DeBacker, Heim, Panousi, Ramnath, and Vidangos (2013) (however, Guvenen, Ozkan, an”
Technology, Vintage-Specific Human Capital, and Labor Displacement: Evidence from Linking Patents with Occupations∗ (2022, background): “To smooth out the impact of transitory earnings spikes (for example, a bonus), we follow Autor, Dorn, Hanson, and Song (2014) and Guvenen, Ozkan, and Song (2014) in that our main outcome variable of interest is the growth in worker i’s average wage earnings, adjusted for life-cycle effects, wit,t+h…”
What Do Data on Millions of U.S. Workers Reveal about Life-Cycle Earnings Risk? (2015, background): “30This figure is on the high end of earlier estimates; see, for example, Haider (2001), Storesletten et al.”
The Cycle of Earnings Inequality: Evidence from Spanish Social Security Data (2017, unknown): “The percentage of previous earnings imputed depends on the number of months in unemployment as follows: 70% (1-6 months), 60% (6-24), 50% (25-48), 40% (49-72), 30% (73-96), 20% (97-120), and 10% (>120).”
Redistribution and Social Insurance (2016, methodology): “…Specification 3, their estimation results for the stochastic process of earnings in the data, which we use to generate the other six data targets reported in the bottom row of Table 1.16 13 Guvenen et al. (2013) find that the persistence of the stochastic process for earnings is very close to one.”
Earnings and Consumption Dynamics: A Nonlinear Panel Data Framework (2015, methodology): “The functional form in (28) does not enforce monotonicity in τ but our estimation method will produce an automatic rearrangement of quantiles if needed.”