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Wednesday, February 20, 2013

Risk Adjusted income and certainty of employment

Mike Kimel has a post Reproduction, Income, and the Future where he quotes comments from breadth of political spectrum and cites his own experience as under:
my wife and I got married late and had one child (one and done) very late. Economic worries were a big part of the decision making process. On paper, my wife and I are doing relatively well financially, but we are extremely aware that a job loss - something that has become extremely common in recent years - or one financial mis-step could mean the difference between whether our son will have far greater opportunity in life than either my wife or I did growing up, or far less opportunity. There doesn't seem to be much in-between. In talking with my parents, they also seem to believe outcomes are more stark for families today. Many of my friends tell me the same thing. And when I talk to people ten or twenty years younger than I, in general, their costs seem to be higher than those I faced, and the potential opportunities fewer.
Yves Smith also weighs in on similar issue - in Disposable workers: Why throwaway employees are bad policy? This post covers a slightly different angle. However, the central issue remains the same.

Now we know that the incomes have grown over the generations but we fail to notice that correspondingly risks to that income have also increased. Thus in general language, while the earning has shot up, the stability of the earning or certainty of earning over long periods has declined. If we truly use risk adjusted income, we will realize new generations are worse off than previously thought. Similar line of argument is followed by Elizabeth Warren in her book Two-income Trap.

This also gives us a corresponding corollary with reference to macro-economic recovery. A recovery is sustainable when there is reasonable certainty about some level of income. That level income, which is certain, forms our debt carrying capacity - not the fluctuating actual income number. Thus, unemployment numbers by themselves do not convey anything about recovery but certainty of employment over most of working life should signal recovery.