Cyclical dynamics in idiosyncratic labor-market risks: Evidence from March CPS 1968-2011

The paper estimates the household labor earning process using the March Current Population Survey 1968-2011. GMM estimates confirm that the results in Storesletten et al. (2004) still hold in a much larger data set over a longer period. The persistent idiosyncratic risk is strongly countercyclical, with an annual auto-correlation equal to .973 and an standard deviation that increases by 72.5% (from .090 to .156) as the macroeconomy moves from peak to trough.