Decomposing Trends in Income Volatility: The “Wild Ride” at the Top and Bottom

Abstract

Abstract:We use two-year panels from the Current Population Survey to provide a detailed accounting of family income volatility from 1980 to 2009. Volatility doubled overall, and the increase was most pronounced among the top 1% of the income distribution, but in any given year the level of volatility among the bottom 10% exceeds that of the top. The increased volatility comes from higher instability of head and spouse earnings, other nonlabor income, and from reduced covariance between these income sources with the tax system. This suggests that current tax policy is less effective in mitigating income shocks than previous decades.

Strengthening Social Programs to Promote Economic Stability During Childhood

“…Although income level is important, emerging evidence suggests that the nature of changes in income and other aspects of social and economic circumstances matter as well. Income volatility has increased in the United States since the 1970s and is higher for lower income, non‐White, and less‐educated individuals (Gottschalk & Moffitt, ; Hardy, ; Hardy & Ziliak, ; Keys, ; Morris, Hill, Gennetian, Rodrigues, & Wolf, ). The rise in income volatility was driven largely by employment insecurity and is attributed to both short‐term economic shocks, such as job loss, and permanent structural changes, including the decline in blue‐collar manufacturing jobs and the increased reliance on part‐time and contingent work arrangements (Dynan, Elmendorf, & Sichel, ; Gottschalk & Moffitt, ; Haider, ; Keys, ; Western, Bloome, Sosnaud, & Tach, ; Ziliak, Hardy, & Bollinger, ).…”

“…For example, among all families, the variability in pre‐tax and transfer income increased by 35% between 1980 and 2012 (Figure ; Hardy, ). Socioeconomically disadvantaged families—specifically those with less‐educated household heads, Black families, and families headed by a single‐mother—reported the highest levels of earnings and income volatility and the largest increases in volatility over time (Gennetian, Rodrigues, Hill, & Morris, ; Hardy, ; Hardy & Ziliak, ; Hryshko, Juhn, & McCue, ; Keys, ; Latner, ; Morduch & Schneider, ). Even married families are not necessarily protected from volatility because partners may work within the same sectors of the economy and suffer the same economic cycles (Ziliak et al, ).…”

Does Welfare Inhibit Success? The Long-Term Effects of Removing Low-Income Youth from the Disability Rolls

“…There is a rich literature documenting earnings and household income volatility in the United States, with mixed evidence as to whether volatility has increased or decreased in recent decades (Dahl, DeLeire, and Schwabish 2011;Ziliak, Hardy, and Bollinger 2011;Dynan, Elmendorf, and Sichel 2012;Hardy and Ziliak 2014). Income volatility is higher for low-income households because of larger earnings fluctuations (Hardy and Ziliak 2014;Morduch and Schneider 2014). Several studies demonstrate that the progressive tax and transfer system in the United States reduces income volatility by responding to shocks in income (Dynarski and Gruber 1997;Kniesner and Ziliak 2002a, b;Blundell, Pistaferri, and Preston 2008).…”

The Effect of the Earned Income Tax Credit in the District of Columbia on Poverty and Income Dyanamics

“…Workers whose earnings fall between years should have their after-tax income supplemented in a progressive tax system, and if they fall into range, via the EITC (Hardy 2015;Hardy and Ziliak 2014;Kniesner and Ziliak 2002). The dependent variable is conditioned for tax filers experiencing a one-year decline in FAGI, and columns 5-6 test the robustness of this result to using a lagged value of the EITC, to test whether last year's t − 1 EITC, received in year t, reduces the absolute value of a negative FAGI percent change between years.…”