Nicholas Rohde - Welfare-Based Measures of Income Insecurity

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Title: Welfare-Based Measures of Income Insecurity

Abstract: This paper develops normative approaches for measuring individual-level income insecurity. Using concepts derived from Expected Utility Theory and Prospect Theory, we build a suite of measures designed to capture various forms of potentially psychologically distressing income risk. We present an application for the US and Germany from 1993-2013 using conditionally heteroskedastic fixed-effects models that generate predictive densities for future incomes. Our results reveal much higher levels of income risk in the US, which can be mostly attributed to a higher level of autonomous, time-invariant volatility. Variations in political administrations partially explain our results, while copula-based counterfactual estimations reveal that changes in labor markets also account for increases in risk over time.

Presenter: Nicholas Rohde, Griffith Business School, Griffith University

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