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Measuring economic insecurity with a joint income-wealth approach

Working Paper 2023-637

Abstract

In this paper, we propose the use of a joint income and wealth distribution to measureeconomic insecurity. Our main purpose is to study its dimension and identify its maindrivers in developed countries overcoming the dichotomy between income and wealth.To this end, we approximate an extended well-being measure that includes monetaryresources from income and the potential stream from wealth, which can be understood asan emergency reserve to cope with future economic difficulties but could also be a sourceof financial distress due to fluctuations in asset holdings and prices. We find thateconomic insecurity levels are larger when considering our extended well-being variablethan income alone. Household income and non-liquid assets appear to be the main driversof economic insecurity, although part of US population was able to obtain higher returnson non-liquid assets and maintain their income levels.

Authors: Dmitry Petrov, Marina Romaguera-de-la-Cruz.

Keywords: income, wealth, economic insecurity, objective risk, PSID
JEL: D63, I39