The Increase in Income Cyclicality of High-Income Households and its Relation to the Rise in Top Income Shares, by Jonathan A. Parker, Northwestern University and NBER Annette Vissing-Jorgensen, Northwestern University, NBER and CEPR, September 7, 2010 We document that there has been a large increase in the cyclicality of the incomes of high-income households that has coincided with the rise in the share of income earned by these households. In the U.S., since to income shares began to rise rapidly in the early 1980’s, the income of those in the top 1% of the income distribution has averaged 11 times average income and been 2.4 times more cyclical. Prior to the early 1980s, the income of the top 1% was slightly less cyclical than that of the average household. The increase in the income cyclicality of the top 1% is to a large extent due to an increase in the share and cyclicality of wages and salaries. This high cyclicality among top incomes is also found i) for households without stock options, ii) for changes in income for the same set of households over time, iii) for post-tax, post-transfer income, and iv) for consumption. We contrast the cyclicality of the top 1% with the cyclicalities of groups further down the income distribution, and reconcile our findings with the earlier literature. We show that recent increases in top-income shares and top-income cyclicality are tightly linked: greater top-income share is associated with greater top-income cyclicality across decades, across subgroups of top incomes, and, in changes, across countries. This close relationship suggests a common cause, which we conjecture is that information and communication technologies have increased the optimal production scale of the most talented and argue that this naturally increases the exposure of top incomes to fluctuations.”