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American Economic Review: Vol. 100 No. 4 (September 2010)
AER Volume. 100, Issue 4 | 
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AER Forthcoming Articles
Wage Risk and Employment Risk over the Life Cycle
Article Citation
Low, Hamish,
Costas Meghir, and
Luigi Pistaferri. 2010. "Wage Risk and Employment Risk over the Life Cycle."
American Economic Review,
100(4): 1432-67.
DOI: 10.1257/aer.100.4.1432
DOI: 10.1257/aer.100.4.1432
Abstract
We specify a life-cycle model of consumption, labor supply and job mobility in an economy with search frictions. We distinguish different sources of risk, including shocks to productivity, job arrival, and job destruction. Allowing for job mobility has a large effect on the estimate of productivity risk. Increases in the latter impose a considerable welfare loss. Increases in employment risk have large effects on output and, primarily through this channel, affect welfare. The welfare value of programs such as Food Stamps, partially insuring productivity risk, is greater than the value of unemployment insurance which provides (partial) insurance against employment risk. (JEL D91, J22, J31, J61, J64, J65)
Article Full-Text Access
Full-text Article
Additional Materials
Download Data Set (9.27 MB) | Online Appendix (190.01 KB)
Authors
Low, Hamish (U Cambridge and Institute for Fiscal Studies, London)
Meghir, Costas (U College London and Institute for Fiscal Studies, London)
Pistaferri, Luigi (Stanford U and SIEPR)
Meghir, Costas (U College London and Institute for Fiscal Studies, London)
Pistaferri, Luigi (Stanford U and SIEPR)
JEL Classifications
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
J22: Time Allocation and Labor Supply
J31: Wage Level and Structure; Wage Differentials
J61: Geographic Labor Mobility; Immigrant Workers
J64: Unemployment: Models, Duration, Incidence, and Job Search
J65: Unemployment Insurance; Severance Pay; Plant Closings
J22: Time Allocation and Labor Supply
J31: Wage Level and Structure; Wage Differentials
J61: Geographic Labor Mobility; Immigrant Workers
J64: Unemployment: Models, Duration, Incidence, and Job Search
J65: Unemployment Insurance; Severance Pay; Plant Closings
