Asymmetric Business-Cycle Risk and Social Insurance

Abstract

as well as seminar and conference participants at various institutions. Domeij acknowledges financial support from the Jan Wallander and Tom Hedelius Foundation. Guvenen acknowledges financial support from the National Science Foundation. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

The Nature of Household Labor Income Risk

“…However, we find that that male earnings experience nonnegligible countercyclical dispersion, as the ratio lies near 1.2 and hits 1.5 and 1.6 for lowand high-earning households, respectively (the dashed line). Our findings on household dispersion match Busch et. al's (2015), who also find no evidence of meaningful cyclicality.…”

“…In our main results, we track the male earner over time and condition on marital status. 16 Similarly, Busch et. al (2015) use the sample of households whose marital status is unchanging.…”

“…labor margins, we first recode $0 earnings to $1 earnings. This four-year change is the same as Busch et. al (2015) use, though it differs slightly from GOS who use a five-year change.…”

“…This work focuses on male earners in isolation because household composition is not included in their data. Busch et al (2015), Arellano (2017), and DeNardi, Fella and Pardo (2018) address this limitation by analyzing household earnings using the Panel Study of Income Dynamics (PSID). 3 The PSID includes information on labor earnings at both the individual and household levels over a relatively long period of time.…”

Higher-Order Income Risk over the Business Cycle

“…Their findings suggest that individual downside risk is larger in a contraction, while upside risk is smaller-this is reflected in a more pronounced left-skewness of the distribution of earnings changes, while the variance is unchanged over the business cycle. Related, Busch et al (2018) conduct a non-parametric analysis of individual and household earnings dynamics in Germany, Sweden, and the US. They find qualitatively the same dynamics as we do: individual and household-level earnings changes are more left-skewed in contractionary times, which suggests increased downside risk in contractions.…”