Volatility isn’t rising

So says the excellent David Leonhardt.  Excerpt:

“There have always been a lot of mass layoffs,” said Lawrence F. Katz, a labor economist at Harvard. “We didn’t count them before.”  In fact, research by Henry S. Farber, an economist at Princeton, has found that job loss rates have followed a cyclical pattern since the early 80s, peaking around the same highs during recessions and falling to similar lows during expansions. (The rate has risen for workers who went to college and fallen a bit who those who didn’t.)

Americans, looking at their own jobs, realize that there hasn’t been a big change: in a recent Gallup Poll, 12 percent of respondents said it was very or fairly likely they would be laid off in the coming year. In the 1970s, 80s and 90s, at similar points in the business cycle, the percentage was virtually identical.

Read the whole thing; Leonhardt agrees with my view that the recent CBO report effectively counters Jacob Hacker on "the great risk shift."  Until we see further evidence to the contrary, that thesis belongs in the "simply isn’t true" pile.


Hmmm.... I have one of those piles out behind my barn.

One more comment: In Hacker's book, he chooses the "early 1970s" as his basis for comparison. The CBO report begins its data in the early 1980s, and specifically notes that their results are "consistent with the results of existing studies, which tend to show more variability in earnings in the 1980s and 1990s (on a percentage basis) than in the 1970s but relatively stable trends in earnings variability since about 1980."

The term "laid off" does not have the same meaning since 1980 that it had
before 1980. Before 1980 the typical laid off worker was a blue collar
manufacturing employee who expected it to be temporary. After a short time
the laid off worker would be recalled to the same job at the same firm with
his seniority and other fringe benefits intact. Now, a laid off worker actually loses the job and has to find another job with a different firm and does not
expect to return to the old job in a short time.

Because the research you cite ignores this structural difference it is extremely biased.


You can see from this simple chart that the income volatility isn't coming from increased unemployment. It is coming from the fact that once you are unemployed, the consequences are dire. The odds of being unemployed for significant amounts of time.

Until I see any evidence to the contrary, we have to assume that income volatility is getting greater. Leonhardt is looking at the wrong data and over too short of a time frame. The highest peak prior to 1980 is the same as the lowest peak since then. The lowest valley since 1980 is higher than the highest valley prior to 1980. Your odds of being one of the long term unemployed are about 50% higher today, at the end part of an economic cycle, are about 4 time larger than they were are the end of the 60s business cycle, and the absolute number of long term unemployed of about 22% of the total unemployed is huge.

Alex and others are on point. Volatility is one element of risk but only one. We need to look at the possibility of permanent displacement over periods of time. Permanent displacement appears to be accompanied by remployment but at considerably lower wages. How has that changed in the last 35 or 40 years. Pensions and health insurance are additional issues. A subset of workers expected to have employer health insurance and pensions for life. This subset appears to be a dwindling set except perhaps in the public sector.

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