Household Income Uncertainties Over Three Decades: We Do Not See A Great Moderation Here

Using a novel semiparametric approach, we estimate household income uncertainties and characterize their dynamics over the last three decades. We find that household income uncertainties have risen significantly and persistently since early 1970s, a phenomenon squarely opposite to “Great Moderation” – the observed sharp decline of volatility in aggregate data. For example, family non-capital income near term uncertainty rose by almost 40 percent over the last three decades. Such increase is likely driven by the growth of variances of both persistent and transitory shocks to income. The increase of income uncertainty was widespread and did not concentrate in any specific subpopulation. However, uncertainties among high education and high income households increased by the most. We also demonstrate that the results presented are invariant to a sequence of robustness test.