HOW CERTAIN ARE DUTCH HOUSEHOLDS ABOUT FUTURE INCOME? AN EMPIRICAL ANALYSIS

Abstract

The precautionary saving literature shows that income uncertainty increases savings and wealth. To estimate the magnitude of this effect, we need a measure of income uncertainty. This paper empirically analyzes subjective income uncertainty in The Netherlands. Data come from a large Dutch household survey. We measure income uncertainty by asking questions on expected household income in the next twelve months. First, we describe the data and investigate the relationship between the measure of income uncertainty and a number of household characteristics. Controlling for information on expected income changes, we find strong relationships between labor‐market characteristics and the subjective income uncertainty as reported by the heads of the households. Second, we compare income uncertainty in The Netherlands with income uncertainty in the U.S. and Italy. It becomes evident that perceived income uncertainty is smaller in The Netherlands than it is in the U.S.