City size, diversification, and income smoothing

This article investigates the mechanisms by which the cities of the United States smooth out fluctuations in their income. Contributions for social security and government transfers (the government channel) take the bulk of smoothing (17 per cent), and intercity mobility ranks high: about 6 per cent of income shocks are smoothed via the choice of working in a city different from the place of residence. The empirical analysis also shows that the various channels of income smoothing operate differently according to the size and the degree of diversification of the city.