Income Risk in 30 Countries

We present a measure of income risk that decomposes income dynamics into long-run inequality, volatility (inter-temporal variability around individual-specific growth rates), and mobility risk (variation in individual-specific growth rates). We measure these income risk components in panel data from 30 rich democracies. We use this comprehensive collection of panel data to analyze long-terms trends in income dynamics for four countries (Canada, Germany, Great Britain, and the United States), and cross-national patterns of income dynamics for an additional 26 countries. We find that tax and transfer systems lower income risk, but less so in the United States than in other comparable countries. We find that higher incomes tend to grow faster and to be more volatile than lower incomes. We find that the United States is exceptional in its level of, and increase in, each type of income risk. Various other measures of mobility are positively correlated with mobility risk.