NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Recessions are Risky for the Top 1 Percent

...there are large differences across industries in top earners' cyclical variability.

Are the earnings of top earners sensitive to business cycles? How does this sensitivity vary by industry? In How Risky Are Recessions for Top Earners? (NBER Working Paper No. 19864), authors Fatih Guvenen, Greg Kaplan, and Jae Song address these questions using a confidential dataset from the Social Security Administration. The dataset includes information on the earnings and industry of employment for U.S. men between 1978 and 2011.

The mean earnings of men in the top 1 percent of the earnings distribution are slightly more cyclical than the mean earnings of all men. However, there are large differences across industries in top earners' cyclical variability. Top earners in finance, insurance, and real estate (FIRE) and construction face substantial business cycle volatility, whereas those in services have earnings that are less cyclical than those of the average worker. Employees of the services industry comprise 40 percent of the individuals in the top 1 percent of the earnings distribution.

The study also reveals differences in the relative cyclical behavior of earnings of top earners, and other earners, within industries. In FIRE, for example, the earnings of the top 1 percent are unusually sensitive to business cycle conditions, while earnings for those in the rest of the distribution are not particularly cyclical. In the service sector, the earnings of the top 1 percent are less cyclical than the earnings of those lower in the distribution.

-- Les Picker

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