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.

According to the permanent income hypothesis with quadratic preferences, households save for a rainy day the transitory component of income innovations and consume entirely the permanent one. The model also rules out precautionary saving. Typically, income shock components are not separately observable, and information on the conditional variance of income is hard to come by. We show how to combine income realizations with subjective expectations to identify separately the transitory and the permanent shock to income and to obtain a measure of idiosyncratic uncertainty, thus providing a powerful test of the theory in short panels. The empirical analysis is performed on a sample of Italian households drawn from the 1989–1991 Survey of Household Income and Wealth.

Using multiple administrative data sources from Norway, we examine how firm performance changes after entrepreneurs become parents.Female-owned businesses experience a substantial decline in profits, steadily decreasing to 30% below baseline ten years post-childbirth.In contrast, male-owned businesses show no decline, often growing in revenues and costs after childbirth.The profit decline for female-owned firms is most pronounced among highly capable entrepreneurs, women who are majority owners, and those with working spouses.Entrepreneurial effort is key to performance, and our findings suggest that time demands from childbirth and childcare are a significant determinant of the decline in firm profits.

Recent theoretical work has shown the importance of measuring microeconomic uncertainty for models of both general and partial equilibrium under imperfect insurance. In this paper the assumption of i.i.d. income innovations used in previous empirical studies is removed and the focus of the analysis placed on models for the conditional variance of income shocks, which is related to the measure of risk emphasized by the theory. We first discriminate amongst various models of earnings determination that separate income shocks into idiosyncratic transitory and permanent components. We allow for education- and time-specific differences in the stochastic process for earnings and for measurement error. The conditional variance of the income shocks is modelled as a parsimonious ARCH process with both observable and unobserved heterogeneity. The empirical analysis is conducted on data drawn from the 1967-1992 Panel Study of Income Dynamics. We find strong evidence of sizeable ARCH effects as well as evidence of unobserved heterogeneity in the variances.

We decompose the wealth effect on consumption into two components. First, we distinguish between exogenous and endogenous wealth changes. Second, we distinguish between anticipated and unanticipated exogenous changes. We estimate the impact of exogenous components using data from the 2008—2010 panel of the Italian Survey of Household Income and Wealth. The wealth effect is about 3 cents per (unexpected) euro increase in wealth and driven by house price changes. The consumption response to anticipated changes in wealth is of similar magnitude and also driven by housing. We show that these findings are consistent with binding borrowing constraints.

We document that individuals who grow up in high firm density areas are more likely to become entrepreneurs, given firm density in their current location, and to run businesses in the sector with the highest density when young. Firm density at an entrepreneur’s young age drives current firm profitability and is more important than current density for business performance. Results hold in a sample of movers, which allows addressing endogeneity concerns. These results are consistent with entrepreneurial skills being partly learnable through social contacts. Accordingly, entrepreneurs who grow up in high firm density areas adopt better managerial practices.

We provide a life-cycle framework for comparing insurance and disincentive effects of disability benefits. The risks that individuals face and the parameters of the Disability Insurance (DI ) program are estimated from consumption, health, disability insurance, and wage data. We characterize the effects of disability insurance and study how policy reforms impact behavior and welfare. DI features high rejection rates of disabled applicants and some acceptance of healthy applicants. Despite worse incentives, welfare increases as programs become less strict or generosity increases. Disability insurance interacts with welfare programs: making unconditional means-tested programs more generous improves disability insurance targeting and increases welfare.

This paper contributes to the debate regarding trends in consumption inequality in the United States. We present a new measure of consumption inequality based on the redesigned 1999-2011 PSID. We impute consumption to the families observed before 1999 using the more comprehensive consumption data available from 1999 onward. One advantage of this procedure is in sample verification of the quality of the imputation procedure; another is that it yields a long time series (1967-2010). Consumption inequality was stable in the 1970s, as was income inequality. It increased significantly after 1980. The Great Recession was associated with a decline in consumption inequality.

The textbook version of the life-cycle permanent income hypothesis with no liquidity constraints predicts that consumption should react very little to transitory shocks to income and very strongly to permanent shocks. This prediction has important policy implications, i.e., to understand the response of consumers to tax rebates or increases that are made for stabilization purposes. In recent years there has been a resurgence of interest in estimating these important parameters, either using quasi-experimental data (such as randomization of the timing when tax rebate checks are received by households, see Christian Broda and