Income volatility

January 7, 2008

Substantial interest has arisen recently regarding how much household income and workers' earnings bounce around from year to year, prompted in part by the work of Jacob Hacker at Yale University. This topic is important not only to understand potential sources of household anxiety, but also in designing social insurance systems and the tax code. In previous work released in 2007, CBO examined the volatility of workers' earnings. That report concluded that earnings were surprisingly volatile, but had been roughly as volatile since the early 1980s -- in other words, earnings volatility had not increased. In preliminary work that I discussed in the latter half of a talk hosted by the Society of Government Economists at the ASSA meetings in New Orleans over the weekend, CBO has now examined the volatility of household income (rather than workers' earnings volatility, the subject of our study in 2007). The preliminary results suggest that household income is much less volatile than individual worker's earnings, and that household income volatility has not increased over time -- and perhaps even declined slightly. Some other recent studies relying on other data sources have suggested increases in household and family income volatility, but various problems in the surveys used in those studies may be contaminating those results. CBO will soon be releasing our final report on the topic. CBO's work on income and earnings volatility is led by Molly Dahl and Jonathan Schwabish of CBO (along with Thomas DeLeire of the University of Wisconsin-Madison) .

  • Molly Dahl joined CBO in 2004 and is currently a Principal Analyst in the Health and Human Resources Division. Her work focuses on labor issues, especially those pertaining to low-income households. Her recent CBO publications include Changes in the Economic Resources of Low-Income Households with Children and Changes in Low-Wage Labor Markets Between 1979 and 2005. She is also an Adjunct Assistant Professor in the Economics Department at Georgetown University. She received her B.A. in mathematics and economics from the University of North Carolina - Chapel Hill (she is a life-long fan of their mens basketball team) and her Ph.D. in economics from the University of Wisconsin - Madison.
  • Jonathan Schwabish joined the CBO in 2004 and is a Principal Analyst in the Long-Term Modeling Group. He recently authored an article on measurement error for the Journal of Economic and Social Measurement and has a paper forthcoming in the journal Public Finance Review about the relationship between inequality and state public spending. His publications include articles in Contemporary Economic Policy, The Monthly Labor Review, Public Finance Review and the award-winning book, Human Capital in the United States from 1975 to 2000: Patterns of Growth and Utilization, published by the W.E. Upjohn Institute. Most of Jonathans work deals with CBOs long-term Social Security and Medicare model (CBOLT) where he is mainly engaged in projecting earnings and labor force behavior. A co-authored CBO paper issued last year described those processes in detail. Prior to joining CBO, Jonathan worked on a variety of state and local governance and economic issues at a nonprofit in New York City. He also currently teaches graduate statistics at the Georgetown Public Policy Institute. A fan of the 26-time World Champion New York Yankees and the New York Giants, Jonathan received his undergraduate degree at the University of Wisconsin at Madison and holds a masters degree in economics from The Johns Hopkins University, and masters and Ph.D. degrees in economics from the Maxwell School at Syracuse University.