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.
Authors
Research Fellow University of Oxford
Hamish is the James Meade Professor of Economics at the University of Oxford, a Professorial Fellow of Nuffield College and a Research Fellow at IFS.
Research Fellow Yale University
Costas is a Research Fellow of the IFS and a Professor of Economics at Yale University and a Visiting Professor at University College London.
Stanford University
Journal article details
- Publisher
- The American Economic Association
- ISSN
- 0002-8282
- Issue
- September 2010
Suggested citation
H, Low and C, Meghir and L, Pistaferri. (2010). 'Wage Risk and Employment Risk over the Life Cycle' (2010)
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