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Anticipated and Unanticipated Wage Changes, Wage Risk, and Intertemporal Labor Supply

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  • Luigi Pistaferri

    (Stanford University and Center for Economic Policy Research)

Abstract

In this article, I estimate how labor supply responds to anticipated wage growth, unanticipated wage growth, and wage risk using the 198993 panel section of the Bank of Italy Survey of Households' Income and Wealth (SHIW), which collects individual expectations of future wages. The use of subjective expectations has several advantages. First, they provide information on the evolution and riskiness of future wages that the econometrician may never hope to observe. Moreover, this avoids the need for specifying instruments for the growth rate of wages. Finally, forecast errors can be directly controlled for, thus avoiding inconsistency in short panels.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Labor Economics.

Volume (Year): 21 (2003)
Issue (Month): 3 (July)
Pages: 729-754

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Handle: RePEc:ucp:jlabec:v:21:y:2003:i:3:p:729-728

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  1. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings Uncertainty and Precautionary Saving," CEPR Discussion Papers 699, C.E.P.R. Discussion Papers.
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  12. Hamish Low, 1999. "Self-insurance and unemployment benefit in a life-cycle model of labour supply and savings," IFS Working Papers W99/24, Institute for Fiscal Studies.
  13. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 115-136, Summer.
  14. Bover, Olympia, 1989. "Estimating Intertemporal Labour Supply Elasticities Using Structural Models," Economic Journal, Royal Economic Society, vol. 99(398), pages 1026-39, December.
  15. Luigi Pistaferri, 2001. "Superior Information, Income Shocks, And The Permanent Income Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 465-476, August.
  16. Gilbert Ghez & Gary S. Becker, 1975. "The Allocation of Time and Goods over the Life Cycle," NBER Books, National Bureau of Economic Research, Inc, number ghez75-1, May.
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