Panel Paper: Trends in Children's Experiences of Household Income Volatility, 1984-2009

Friday, November 7, 2014 : 10:15 AM
Cochiti (Convention Center)

*Names in bold indicate Presenter

Pamela Morris1, Lisa Gennetian1,2, Heather Hill3 and Sharon Wolf1, (1)New York University, (2)The National Bureau of Economic Research, (3)University of Chicago
Research on trends in earnings and income volatility has produced mixed results: some studies document consistently increasing earnings or income volatility over the past three decades, while others find increases in the 1980s and then stable rates in the 1990s and 2000s. In this paper, we revisit the question of whether or not household income volatility has risen over the past three decades, adding to the prior literature on income volatility in several ways.  We focus on families with children and examine volatility from the perspective of the child, because our prior work suggests that household income volatility may create a chaotic and unpredictable family context with negative implications for children’s physical, cognitive, and socioemotional development.  We also expand on existing research by incorporating data from both the early 1980s and the late 2000s—a 26-year period altogether, which captures two different recession periods. Finally, the analyses focus on comparing trends for the top and bottom income decilesin order to contribute to the growing body of research on trends in income inequality.

Our analyses use the 1984, 1996, 2001, 2004, and 2008 panels of the Survey of Income and Program participation (SIPP). The SIPP is uniquely positioned to answer the questions posed in this paper because it is nationally-representative and collects frequent and detailed income information, as well as other information about household characteristics. We examine intra-year income volatility by calculating the coefficient of variation (CV), the standard deviation of income divided by the mean, across the three waves of data collected in each of three years (nine total waves) of a SIPP panel. In addition to total income, we calculate separately the volatility of earned and unearned income. We also disaggregate the findings on changes to CV by separately examining changes in the means and variances of the income measures.

Preliminary results suggest that the gap in income volatility between the poorest and the wealthiest families is widening. From the early 80s to the mid-90s, the gap in levels of income volatility between the lowest and highest income families narrowed. By 2001, however, the gap in income volatility experienced by children in the poorest and wealthiest families had widened considerably – and it currently shows no sign of decreasing. These patterns of income volatility suggest that not only are poor families becoming poorer and rich families becoming richer, but poor families are also more likely to experience unstable income and rich families are less likely to do so. In addition, the increase in volatility for the families in the bottom decile is a function of increasing variability in both earned and unearned income.