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

  • Luigi Pistaferri

    (Stanford University and Center for Economic Policy Research)

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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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. Chamberlain, Gary, 1984. "Panel data," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 2, chapter 22, pages 1247-1318 Elsevier.
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  18. 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.
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