Income Volatility

There's a lot being written about free trade today, e.g. see this discussion from Greg Mankiw (some of the discussion is about technological change rather than free trade, but it has the same characteristics in terms of displacing labor, Free Exchange explains how trade and technology are related here). Given these discussions, perhaps it's a good time to recall that it's not just the level and distribution of income that matters, it's also the volatility, and according to the latest estimates from Jacob Hacker and Elizabeth Jacobs, family income volatility has been rising in recent decades:

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.