Measuring the Variance-Age Profile of Lifetime Income

21 Pages Posted: 18 Jun 2004

See all articles by Benjamin Eden

Benjamin Eden

University of Haifa - Department of Economics; National Bureau of Economic Research (NBER)

Ariel Pakes

National Bureau of Economic Research (NBER); Harvard University - Department of Economics

Date Written: May 1979

Abstract

This paper presents an operational meaning to the concept of the variance in lifetime income in terms of the discounted variance of T mutually uncorrelated, sequentially realized, random variables. It is then shown how the logical implications of the lifecycle consumption model can be used to estimate this series of variances, called the variance-age profile of lifetime income, and we refer to an earlier paper by Eden (1977) to show how this variance-age profile can be used to compare the riskiness of alternative labor income paths. Finally the estimation technique is applied to Israeli data in order to compare the riskiness of the earnings path of those who attended college with that of those who terminated their education at the high school level in that economy, and to consider data requirements and estimation problems in greater depth.

Suggested Citation

Eden, Benjamin and Pakes, Ariel, Measuring the Variance-Age Profile of Lifetime Income (May 1979). NBER Working Paper No. w0350. Available at SSRN: https://ssrn.com/abstract=260525

Benjamin Eden (Contact Author)

University of Haifa - Department of Economics ( email )

Haifa 31905
Israel
+972 4 8249238 (Phone)
+972 4 8240059 (Fax)

National Bureau of Economic Research (NBER)

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United States

Ariel Pakes

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Department of Economics ( email )

Littauer Center
Room 117
Cambridge, MA 02138
United States
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617-495-8570 (Fax)

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