Market, Family, and State Sources of Income Instability in Germany and the United States

The public tax and transfer mechanisms of the welfare state are important sources of income stability for individuals and families. In comparisons of the stability of income in the United States and the states of the former West Germany, we found that household income tends to be more stable in Germany than in the United States. This disparity is partly due to greater turbulence in labor earnings in the United States and partly due to the more effective public social insurance system in Germany. These differences, however, are tempered by mechanisms that amount to a private, family-based insurance system in the United States, where, more so than in Germany, labor income from other family members and other, nonlabor sources of private income provide considerable stability.