The nature of countercyclical income risk

Fatih Guvenen, Serdar Ozkan, Jae Song

Research output: Contribution to journalArticlepeer-review

163 Scopus citations


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.

Original languageEnglish (US)
Pages (from-to)621-660
Number of pages40
JournalJournal of Political Economy
Issue number3
StatePublished - Jun 2014


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