Income volatility: Another source of growing economic insecurity

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Snapshot for May 28, 2008.

Income volatility: Another source of growing economic insecurity

by Jacob Hacker and Elisabeth Jacobs

There are many dimensions to the economic insecurity facing American families today. Mid-level incomes have stagnated in real terms over the past few years, and most recently, higher gas and food prices are taking a larger bite out of paychecks. But one dimension of economic insecurity gets less attention: the increase in family income volatility, or how much families' incomes fluctuate up and down over time.

Recent analysis shows that families are facing much greater income swings than they did a generation ago. The Chart plots the increase in average family income volatility, showing various peaks and valleys around an upward trend since the mid-1970s. Over the last three decades, volatility by this measure has doubled.

Most Americans have little in the way of easily tapped wealth to tide them over when their incomes drop. It is on the downward trips of the economic roller coaster that jobs, houses, savings, and other things gained on the way up get lost. No wonder Americans are worried about their economic security.

Authors Hacker and Jacobs will present and discuss their new EPI study, The Rising Instability of American Family Incomes, 1969-2004 at the EPI Event Rising Income Insecurity on Thursday, May 29.

—Jacob S. Hacker is professor of political science and resident fellow of the Institution for Social and Policy Studies, Yale University, and a fellow at the New America Foundation. His latest book is The Great Risk Shift: The New Economic Insecurity and the Decline of the American Dream, revised and expanded edition (Oxford University Press 2008). He is also the author of the Agenda for Shared Prosperity paper, Health Care for America.

—Elisabeth Jacobs is a fellow in the Multidisciplinary Program on Inequality & Social Policy at Harvard University, where she is a doctoral candidate. Currently a guest at the Brookings Institution, she is also the founder and director of New Vision, an institute for policy and progress.