Whatever the reason, it’s clear that many or even most American workers have been on the losing end of what political scientist Jacob Hacker calls “The Great Risk Shift.” This has happened even as real income growth has slowed down:
And now we return to the concept of mean-variance utility. Growth in Americans’ mean incomes has decelerated, while the variance has risen. No wonder the economy feels like it hasn’t been good in decades, despite low unemployment.
So what’s to be done about income volatility? A big part of the job, of course, is avoiding repeats of the Great Recession. Beyond that, financialization, especially private equity’s practice of taking over companies and imposing mass layoffs, has to be thoroughly reexamined. And it may also be useful to encourage the creation of new kinds of work contracts that offer more long-term stability. In any case, though, it seems clear that income volatility is a problem that has received too little attention.
This article provided by Bloomberg View.