The Distribution of Economic Insecurity: Italy and the U.S. Over the Great Recession

Abstract

We estimate the distribution of economic insecurity in Italy and the U.S. using data from 1994 to 2010. Economic insecurity for each individual is assumed to depend on both current wealth and the changes in wealth that have been experienced in the past. The first element plays the role of the buffer stock that can be relied on in the case of an adverse future event. The second element reflects the individual's confidence in his ability to overcome any losses in the future. With respect to this second element, experiences in the recent past are given greater weight than experiences that occurred in the more distant past. The results confirm that the great recession has had a dramatic effect on the distribution of economic insecurity in both countries with the effect being much stronger in the U.S.