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Cyclical Dynamics in Idiosyncratic Labor Market Risk
Abstract
Is individual labor income more risky in recessions? This is a difficult question to answer because existing panel data sets are so short. To address this problem, we develop a generalized method of moments estimator that conditions on the macroeconomic history that each member of the panel has experienced. Variation in the cross‐sectional variance between households with differing macroeconomic histories allows us to incorporate business cycle information dating back to 1930, even though our data do not begin until 1968. We implement this estimator using household‐level labor earnings data from the Panel Study of Income Dynamics. We estimate that idiosyncratic risk is (i) highly persistent, with an annual autocorrelation coefficient of 0.95, and (ii) strongly countercyclical, with a conditional standard deviation that increases by 75 percent (from 0.12 to 0.21) as the macroeconomy moves from peak to trough.
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Cites
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Entrepreneurship, Frictions, and Wealth
Cagetti, M., & De Nardi, M. (2006) · Journal of Political Economy · doi:10.1086/508032 · Cited by 1,013
Financial Integration, Financial Development, and Global Imbalances
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Monetary Policy and the Redistribution Channel
Auclert, A. (2019) · American Economic Review · doi:10.1257/aer.20160137 · Cited by 773
Favilukis, J., Ludvigson, S. C., & Van Nieuwerburgh, S. (2017) · Journal of Political Economy · doi:10.1086/689606 · Cited by 538
Portfolio Choice over the Life‐Cycle when the Stock and Labor Markets Are Cointegrated
BENZONI, L., COLLIN‐DUFRESNE, P., & GOLDSTEIN, R. S. (2007) · The Journal of Finance · doi:10.1111/j.1540-6261.2007.01271.x · Cited by 466
Metadata
- Authors
- Storesletten, K., Telmer, C. I., & Yaron, A.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 2004-06
- Volume
- 112
- Issue
- 3
- Pages
- 695-717
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W2120462834
- Cited by
- 666
- References
- 30
- FWCI
- 65.59
- Type
- journal article
- Language
- en
- Open access
- closed
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Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
