The Impact of Recessions on Two-Parent Families: An Analysis of Earnings-Sensitivity by Family Income Class

Abstract

This article uses a microunit analysis to examine cyclical changes in the distribution of earnings. The analysis departs from earlier studies in several respects. It relies on a more cautious definition of family income class, calculates recession-induced changes in the Gini coefficient by estimating losses for each household in the sample, and measures the distributional effects of cyclical changes in wage rates. The procedures guard against a bias toward findings of regressivity. Yet the results indicate a generally regressive pattern that is complicated by substantial losses among certain high-wage categories. At the same time, the approach identifies several channels through which losses are distributed. Specifically, the analysis links the pattern of losses to allocation rules based on occupation and tenure status. Moreover, the results indicate that wage-decay effects reinforce the regressive tendencies. These tenure and wage effects have not received attention in prior empirical studies of recession incidence although theory suggests that they play a major role.