Dynamics of earnings in Chile
Uncertainty is a key dimension of individual decisionmaking. Individuals cannot insure against certain contingencies under incomplete markets. Uncertainty thus influences the life-cycle evolution of consumption and savings, labor supply and asset allocation, and education and occupation choices. Uncertainty and risk also determine income and consumption inequality. Individuals who are identical exante will have different lifetime paths of consumption ex post, as some individuals are lucky and get good draws of income, employment, and health, whereas others get bad shocks and end up with lower levels of consumption over the life cycle. Income mobility and the persistence of income inequality and poverty depend on the dynamics of earnings, health outcomes, investment opportunities, and general earnings capacity.