An empirical analysis of earnings and employment risk

The mean and higher moments of the distribution of future income are crucial determinants of individual choices. These moments are usually estimated in panel data from past income realizations. In this article 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 on the probability of unemployment. Analysis of this distribution helps us understand how individual uncertainty evolves over the life cycle and if attitudes toward risk affect occupational choices and income riskiness.