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Labor Income Indices Designed for Use in Contracts Promoting Income Risk Management

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Abstract

Labor income indices are created for groupings of individuals, using data from the Panel Study of Income Dynamics. People are grouped by a clustering algorithm based on an estimated transition matrix between jobs, by education level, and by skill category. The groups are defined so that relatively few people move between them. For each of the groupings, we generate a labor income index using a hedonic repeated-measures regression methodology. Similarities between pairs of indices and between indices and individual labor incomes are described. It is argued that indices like those presented here might someday be used in settlement formulae in contracts promoting income risk management.

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Bibliographic Info

Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1110.

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Length: 33 pages
Date of creation: Aug 1995
Date of revision:
Publication status: Published in Review of Income and Wealth (1998), 44(2): 163-182
Handle: RePEc:cwl:cwldpp:1110

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  1. Gary Solon & Robert Barsky & Jonathan A. Parker, 1992. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias," NBER Working Papers 4202, National Bureau of Economic Research, Inc.
  2. Bewley, Truman F, 1995. "A Depressed Labor Market as Explained by Participants," American Economic Review, American Economic Association, vol. 85(2), pages 250-54, May.
  3. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 259-93, March.
  4. Robert J. Shiller & Stefano Athanasoulis, 1995. "World Income Components: Measuring and Exploiting International Risk Sharing Opportunities," NBER Working Papers 5095, National Bureau of Economic Research, Inc.
  5. Bils, Mark J, 1985. "Real Wages over the Business Cycle: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(4), pages 666-89, August.
  6. Cargill, Thomas F, 1969. "An Empirical Investigation of the Wage-Lag Hypothesis," American Economic Review, American Economic Association, vol. 59(5), pages 806-16, December.
  7. Shiller, Robert J, 1993. " Measuring Asset Values for Cash Settlement in Derivative Markets: Hedonic Repeated Measures Indices and Perpetual Futures," Journal of Finance, American Finance Association, vol. 48(3), pages 911-31, July.
  8. Peter Gottschalk & Robert Moffitt, 1994. "The Growth of Earnings Instability in the U.S. Labor Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(2), pages 217-272.
  9. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
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Cited by:
  1. Robert J. Shiller, 1997. "Expanding the Scope of Individual Risk Management: Moral Hazard and Other Behavioral Considerations," Cowles Foundation Discussion Papers 1145, Cowles Foundation for Research in Economics, Yale University.
  2. Mario Sarcinelli, 2003. "Crisi economiche e mercati finanziari:  di aiuto un nuovo ordine finanziario?," Moneta e Credito, Economia civile, vol. 56(224), pages 387-422.
  3. Robert J. Shiller, 1998. "Designing Indexed Units of Account," Cowles Foundation Discussion Papers 1179, Cowles Foundation for Research in Economics, Yale University.
  4. Rainer Schulz & Martin Wersing & Axel Werwatz, 2014. "Renting versus Owning and the Role of Human Capital: Evidence from Germany," The Journal of Real Estate Finance and Economics, Springer, vol. 48(4), pages 754-788, May.
  5. Robert Hahn & Paul Tetlock, 2006. "A New Approach for Regulating Information Markets," Journal of Regulatory Economics, Springer, vol. 29(3), pages 265-281, 05.

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