NCPA - National Center for Policy Analysis


May 5, 2009

According to a new study by the National Bureau of Economic Research, the income -- especially the wage income -- of rich households is now more vulnerable to aggregate fluctuations than that of poorer households and the consumption of high-income households varies more with aggregate fluctuations in part because the income of these households varies more.  This has clear implications for the effects of recent recessions on consumption inequality.

Researchers based the study on two somewhat disparate strands of prior research:

  • One, which documents increases in income and consumption inequality over the past 25 years, focuses on the extent to which income shocks are insured.
  • The other involves asset pricing.

They found that the consumption of high-consumption households is more exposed to fluctuations in aggregate consumption and income than that of low-consumption households in the Consumer Expenditure (CEX) Survey.


  • The exposure to aggregate consumption growth of households in the top 10 percent of the consumption distribution in the CEX is about five times that of households in the bottom 80 percent.
  • Given real aggregate per capita consumption growth about 3 percentage points less than its historical mean during the past year, these figures predict that the ratio of consumption of the top 10 percent to the bottom 80 percent has fallen by about 15 percentage points (relative to trend).
  • Using income data, the researchers found that the income (especially the wage income) of rich households is more exposed to aggregate fluctuations, so their higher income exposure is a likely contributor to their higher consumption exposure.
  • Finally, the researchers found a striking change in the exposure of the incomes of high-income households: prior to the early 1980's, the incomes of high-income households were not more exposed to aggregate fluctuations.

Thus, while high-income households currently bear an inordinately large share of aggregate fluctuations, this is a recent occurrence, say the researchers.

Source: Matt Nesvisky, "Who Bears Aggregate Fluctuations and How?" NBER Digest, April 2009; based upon: Jonathan A. Parker and Annette Vissing-Jorgensen, "Who Bears Aggregate Fluctuations and How?" National Bureau of Economic Research, Working Paper, No. 14665, January 2009.

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