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What Determines Earnings and Employment Risk?

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  • Luigi Guiso

    ()
    (University of Sassari, Ente Luigi Einaudi and CEPR)

  • Tullio Jappelli

    ()
    (CSEF, Università di Salerno, and CEPR)

  • Luigi Pistaferri

    ()
    (University College London, Istituto Universitario Navale, Napoli and CSEF, University of Salerno)

Abstract

Expectations and riskiness of future earnings are crucial determinants of individuals’ intertemporal choices. Yet, the empirical literature lacks reliable measures of the distribution of future income. Lacking direct observability, the latter is usually estimated inferring moments of the distribution from income realizations on panel data. In this paper we rely instead on subjective expectations available in the 1995 Survey of Household Income and Wealth, a large random sample representative of Italian households. The survey elicits information on the distribution of future earnings and the probability of employment in a very simple and parsimonious way. Based on the responses, we estimate the individual distributions of expected earnings conditional on working as well as unconditional. We can then relate various moments of these distributions to demographic and economic variables observable in the cross-section.

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Bibliographic Info

Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 08.

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Date of creation: 01 Oct 1998
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Publication status: Published in Journal of Business and Economic Statistics, April 2002, vol. 20, issue 2, pages 241-253
Handle: RePEc:sef:csefwp:08

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Keywords: Subjective expectations; income risk; unemployment;

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References

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  1. Jeff Dominitz & Charles F. Manski, 1994. "Using Expectations Data to Study Subjective Income Expectations," NBER Working Papers 4937, National Bureau of Economic Research, Inc.
  2. Jeff Dominitz & Charles F. Manski, 1996. "Perceptions of Economic Insecurity: Evidence from the Survey of Economic Expectations," NBER Working Papers 5690, National Bureau of Economic Research, Inc.
  3. Browning, Martin & Hansen, Lars Peter & Heckman, James J., 1999. "Micro data and general equilibrium models," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 8, pages 543-633 Elsevier.
  4. Guiso, Luigi & Jappelli, Tullio & Terlizzese, Daniele, 1992. "Earnings uncertainty and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 30(2), pages 307-337, November.
  5. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
  6. Jeff Dominitz, 1998. "Earnings Expectations, Revisions, And Realizations," The Review of Economics and Statistics, MIT Press, vol. 80(3), pages 374-388, August.
  7. Karen E. Dynan, 1993. "How prudent are consumers?," Working Paper Series / Economic Activity Section 135, Board of Governors of the Federal Reserve System (U.S.).
  8. Caballero, R.J., 1988. "Consumption Puzzles And Precautionary Savings," Discussion Papers 1988_05, Columbia University, Department of Economics.
  9. MaCurdy, Thomas E., 1982. "The use of time series processes to model the error structure of earnings in a longitudinal data analysis," Journal of Econometrics, Elsevier, vol. 18(1), pages 83-114, January.
  10. Dynan, Karen E, 1993. "How Prudent Are Consumers?," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1104-13, December.
  11. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
  12. Das, Marcel & Donkers, Bas, 1999. "How Certain Are Dutch Households about Future Income? An Empirical Analysis," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(3), pages 325-38, September.
  13. Flinn, Christopher J, 2002. "Labour Market Structure and Inequality: A Comparison of Italy and the U.S," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 611-45, July.
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Cited by:
  1. Arie Kapteyn & Constantijn Panis, 2003. "The Size and Composition of Wealth Holdings in the United States, Italy, and the Netherlands," NBER Working Papers 10182, National Bureau of Economic Research, Inc.
  2. Luigi Guiso & Tullio Jappelli, 2000. "Household Portfolios in Italy," CSEF Working Papers 43, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.

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