Wage Risk and Employment Risk over the Life Cycle
- (pp. 1432-67)
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)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.100.4.1432Additional Materials
JEL Classification
- D15 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