Wage Risk and Employment Risk over the Life Cycle / Hamish Low, Costas Meghir, Luigi Pistaferri.

Format:

Book

Author/Creator:

Low, Hamish.

Contributor:

National Bureau of Economic Research.

Meghir, Costas.

Pistaferri, Luigi.

Series:

Working Paper Series (National Bureau of Economic Research) no. w14901.

NBER working paper series no. w14901

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2009.

Summary:

We specify a structural life-cycle model of consumption, labour supply and job mobility in an economy with search frictions that allows us to distinguish between different sources of risk and to estimate their effects. The sources of risk are shocks to productivity, job destruction, the process of job arrival when employed and unemployed and match level heterogeneity. In contrast to simpler models that attribute all income fluctuations to shocks, our framework disentangles variability due to shocks from variability due to the responses to these shocks. Estimates of productivity risk, once we control for employment risk and for individual labour supply choices, are substantially lower than estimates that attribute all wage variation to productivity risk. Increases in productivity risk impose a considerable welfare loss on individuals and induce substantial precautionary saving. Increases in employment risk have large effects on output and, primarily through this channel, affect welfare. The welfare value of government p rogram s such as food stamps which partially insure productivity risk is greater than the value of unemployment insurance which provides (partial) insurance against employment risk and no insurance against persistent shocks.

Notes:

Print version record

April 2009.