The Economic Security Index: A New Measure for Research and Policy Analysis

Authors


  • Note: The authors thank Lars Osberg, Conchita D'Ambrosio, two anonymous reviewers, and participants in the November 2011 Conference where this paper was first presented. We are also grateful to the Rockefeller Foundation; the technical advisory committee it created—Henry Aaron (Chair), Gary Burtless, Henry Farber, Robert Greenstein, Larry Mishel, Alicia Munnell, and Robert Solow—and the New America Foundation for hosting events. Aisling Nagel, Kyle Caswell, Avi Kupfer, Della Fok, Shijie Feng, and Dawn Whitehead provided excellent research support; Tom Hertz and Jeff Larrimore, crucial advice; and Victoria Bilski, invaluable project management. Notwithstanding our gratitude to these individuals and institutions, the views and analyses conveyed in this article are ours alone; they should not be attributed to the Federal Reserve or any other institution with which we are affiliated.

Abstract

This article presents the Economic Security Index (ESI), a new measure of economic insecurity. The ESI assesses the individual-level occurrence of substantial year-to-year declines in available household resources, accounting for fluctuations not only in income but also in out-of-pocket medical expenses. It also assesses whether those experiencing such declines have sufficient liquid financial wealth to buffer against these shocks. We find that insecurity—the share of individuals experiencing substantial resource declines without adequate financial buffers—has risen steadily since the mid-1980s for virtually all subgroups of Americans, albeit with cyclical fluctuation. At the same time, we find that there is substantial disparity in the degree to which different subgroups are exposed to economic risk. As the ESI derives from a data-independent conceptual foundation, it can be measured using different panel datasets. We find that the degree and disparity by which insecurity has risen is robust across the best available sources.

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