Minneapolis Fed: Income Volatility on the Rise

One year of unemployment today causes a 50% greater hit to long-term earnings than in 1985, according to a Minneapolis Federal reserve working paper.

“Unemployment has become non-employment—long spells with large wage losses,” said Kyle Herkenhoff, Minneapolis Fed senior economist. “If income shocks are becoming more persistent over time, we need to be rethinking the way we insure workers.”

According to the study bouts of unemployment today last longer and affect long-term income more profoundly that in the past, as earnings become increasingly volatile over the course of working lives.

The study notes that increasing income risk is especially salient for college-educated people.

“Unemployed people with a college degree face over 50 percent greater earnings risk than those without,” notes the report. “Their risk has increased over time, while the risk for other workers has hardly budged. The long-term, negative income consequences of unemployment are also growing faster for higher-educated workers.”

By Staff