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-house-hold 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.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 207-242 |
| Number of pages | 36 |
| Journal | American Economic Journal: Macroeconomics |
| Volume | 14 |
| Issue number | 2 |
| DOIs | |
| State | Published - 2022 |
Bibliographical note
Funding Information:* Busch: LMU Munich, CESifo (email: [email protected]); Domeij: Department of Economics, Stockholm School of Economics (email: [email protected]); Guvenen: University of Minnesota, Federal Reserve Bank of Minneapolis, and NBER (email: [email protected]); Madera: Southern Methodist University (email: [email protected]). Benjamin Moll was coeditor for this article. For helpful comments, we thank three anonymous referees, Nick Bloom, Alexander Ludwig, Kurt Mitman, Luigi Pistaferri, Anthony Smith, and Kjetil Storesletten as well as seminar and conference participants at various institutions. Busch acknowledges financial support from ERC Advanced Grant (Agreement no. 324048 APMPAL), from the Spanish Ministry of Science and Innovation, through the Severo Ochoa Program for Centres of Excellence in R&D (CEX2019-000915-S). Domeij acknowledges financial support from the Jan Wallander and Tom Hedelius Foundation (P16-0252). Guvenen acknowledges financial support from the National Science Foundation (SES-1357874). For the part of the analysis using DADS data, this work is supported by a public grant overseen by the French National Research Agency (ANR) as part of the “Investissements d’Avenir” program (reference: ANR-10-EQPX-17 - Centre d’accès sécurisé aux données, CASD). We also thank Priscilla Fialho for help with the DADS data. Previous versions of this paper were circulated under the title “Asymmetric Business Cycle Risk and Social Insurance.” †Go to https://doi.org/10.1257/mac.20190019 to visit the article page for additional materials and author disclosure statement(s) or to comment in the online discussion forum.
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