Distributional Characteristics of Income Insecurity in the U.S., Germany, and Britain

Abstract

This paper studies income volatility using recent data from the Cross National Equivalence File (CNEF). Measures of downward instability are applied to household income streams and the results are interpreted as indicators of income insecurity. Using this method we examine (i) cross national differences in average insecurity levels, (ii) the effects of taxes and transfers, and (iii) relationships between the insecurity index and household income. Insecurity estimates based on pre-government incomes are highest in Britain and lowest in Germany, however results for post-government incomes are highest in the U.S. It is also shown that insecurity estimates based upon pre-government incomes are heavily concentrated at the lower end of the distribution; although governments are effective at smoothing the income streams of these households. We also search for determinants of our measure and find that gender, household size, health status, and industry affiliations of the household head are the most significant covariates. JEL Code: D31

Economic Insecurity in Australia: Who is Feeling the Pinch and How?

“…The industry dummies continue to imply that there is a lower degree of insecurity for individuals belonging to well‐defined industrial groups, a similar result to that reported by Rohde et al . (). Notably, this was especially strong in industries that employed high‐skilled workers.…”

The effect of economic insecurity on mental health: Recent evidence from Australian panel data

“…However the concept can be operationalized by measuring specific phenomena that are likely to be stressful and combining these indicators with the aim of inferring the resultant sense of anxiety. Economic insecurity is thus seen as a multidimensional concept that includes (alongside job insecurity) the risk of poverty (Bandyopadhyay & Cowell, 2007;Calvo & Dercon, 2005), income volatility Smith, Stoddard & Barnes, 2011;Rohde, Tang & Rao, 2014), bankruptcy (Kalleberg, 2009), loss through family dissolution, crime or widowhood (Western, Bloom, Sosnaud & Tach 2013;Osberg & Sharpe, 2002), wealth dynamics (Bossert & D'Ambrosio, 2013;D'Ambrosio & Rohde, 2014) and lack of access to insurance, in particular health insurance (Dominitz & Manksi, 1997;Bucks, 2011;Hacker, 2006;Hacker et al, 2010). At the aggregate level phenomena such as business cycles (Stuckler et al, 2011) and exposure to international competition (Scheve & Slaughter, 2004;Standing, 1997) are also relevant.…”

“…Income based indicators typically measure negative instability and have been used as a basis for measurement by Hacker et al (2010), Rohde et al (2014) and Nichols and Rehm (2014). The central idea is that volatility, and in particular downward movements, will highlight an unreliable income and therefore capture an important aspect of insecurity.…”

The Contribution of Income Mobility to Economic Insecurity in the US and Spain during the Great Recession

“…For instance, Barnes and Smith (2011) consider different proxies for economic insecurity: individuals' unemployment probability using information from the last five years, individuals' probability of experiencing an income loss pushing them beneath the poverty threshold (considering a 16-year, de-trended household annual income) and the number of annual real income drops exceeding 10%. Rhode, Tang, and Rao (2014), instead, use 15 years of income information and identify individuals in households whose relative income shares over time have had a negative trend as economically insecure.…”

“…In this vein, we use income instability in a two-year period to measure the dimension of economic insecurity and to identify the covariates that make an individual most exposed to it. Obviously, similarly to Rhode et al (2014), we take a narrow definition of insecurity because we have restricted our analysis to income volatility or mobility as a determinant of insecurity, while ignoring other sources of risk and the heterogeneous capacity of individuals to cover this risk through the use of previous wealth. 4 However, we are endogenously taking into account the role of two crucial sources of individual income stabilization and protection against risk: the dimension and effectiveness of the tax and transfer systems and the household's demographic structure.…”