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Colleen Carey
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Publisher: Journals Gateway
The Review of Economics and Statistics (2013) 95 (2): 549–562.
Published: 01 May 2013
Abstract
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Countercyclical variation in individuals' idiosyncratic labor income risk could generate substantial welfare costs. Following past research, we infer income volatility—the variance of permanent income shocks, a standard proxy for income risk—from the rate at which cross-sectional variances of income rise over the life cycle for a given cohort. Our novelty lies in exploiting cross-state variation in state economic conditions or state sensitivity to national economic conditions. We find that income volatility is higher in good state times than bad; during good national times, we find volatility is higher in states that are more sensitive to national conditions.
Includes: Supplementary data