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Subjective Earnings Risk

Author

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

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

  • 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 04 Jan 2024.
    • Handle: RePEc:fip:fedlwp:95736
    DOI: 10.20955/wp.2023.003
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    Cited by:

    1. Tao Wang, 2023. "Perceived versus Calibrated Income Risks in Heterogeneous-Agent Consumption Models," Staff Working Papers 23-59, Bank of Canada.

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    More about this item

    Keywords

    earnings risk; job transitions; subjective expectations;
    All these keywords.

    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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