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Subjective Earnings Risk

Author

Listed:
  • Caplin, Andrew
  • Gregory, Victoria
  • Lee, Eungik
  • Leth-Petersen, Søren
  • Sæverud, Johan

Abstract

We introduce a survey instrument to measure earnings risk allowing for the possibility of quitting or being fired from the current job. We find these transitions to be the key drivers of subjective risk. A link with administrative data provides multiple credibility checks for correspondingly aggregated data. Yet it reveals subjective earning risk to be many times smaller than traditional estimates imply even when conditioning richly on demographics and job history. A life-cycle search model calibrated to match data on job transitions and earnings can replicate the distribution of subjective beliefs reported in the survey. Job-match quality, which directly impacts subjective risk but is impossible to identify in administrative data, contributes significantly to earnings risk. This highlights the importance of administratively linked subjective risk measures.

Suggested Citation

  • Caplin, Andrew & Gregory, Victoria & Lee, Eungik & Leth-Petersen, Søren & Sæverud, Johan, 2023. "Subjective Earnings Risk," CEPR Discussion Papers 17987, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17987
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    Other versions of this item:

    • Andrew Caplin & Victoria Gregory & Eungik Lee & Soeren Leth-Petersen & Johan Saeverud, 2023. "Subjective Earnings Risk," CEBI working paper series 23-01, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    • Andrew Caplin & Victoria Gregory & Eungik Lee & Soren Leth-Petersen & Johan Sæverud, 2023. "Subjective Earnings Risk," Working Papers 2023-003, Federal Reserve Bank of St. Louis, revised 25 Apr 2025.
    • Andrew Caplin & Victoria Gregory & Eungik Lee & Søren Leth-Petersen & Johan Sæverud, 2023. "Subjective Earnings Risk," NBER Working Papers 31019, National Bureau of Economic Research, Inc.

    Citations

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    Cited by:

    1. is not listed on IDEAS
    2. Bairoliya, Neha & McKiernan, Kathleen, 2024. "The welfare costs of misinformation," Journal of Economic Dynamics and Control, Elsevier, vol. 169(C).
    3. Caldwell, Sydnee & Hägele, Ingrid & Heining, Jörg, 2025. "Bargaining and Inequality in the Labor Market," IAB-Discussion Paper 202502, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    4. Tao Wang, 2023. "Perceived versus Calibrated Income Risks in Heterogeneous-Agent Consumption Models," Staff Working Papers 23-59, Bank of Canada.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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