Household Income Volatility and Decomposition by Income Source in Japan

Household well-being is influenced not only by income levels but also by income volatility. Increased income volatility leads to a decline in living standards and an increased risk of poverty. In this paper, using household panel data from Keio University’s “Japan Household Panel Survey (JHPS/KHPS),” we examine which sources of income contribute to household income volatility through a factor decomposition by income source. Furthermore, using event-study analysis, we examine the extent to which providing long-term care for family members causes changes in income and the duration of those effects. The results of the factor decomposition by income source indicate that household income volatilities are primarily driven by the husband’s earned income; however, in households with children, both the husband’s and wife’s earned income play a significant role. Furthermore, the results of the event-study analysis confirmed that when family members require care - particularly if the care involves leaving the job - household income decreases, and this impact can persist over the long term.