Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/311937 
Year of Publication: 
2024
Series/Report no.: 
IZA Discussion Papers No. 17498
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
We decompose earnings risk into contributions from hours and wage shocks. To distinguish between hours shocks, modeled as innovations to the marginal disutility of work, and labor supply reactions to wage shocks we formulate a life-cycle model of consumption and labor supply. For estimation we use data on married American men from the PSID. Permanent wage shocks explain 31% of total risk, permanent hours shocks 21%. Progressive taxation attenuates cross-sectional earnings risk, but its life-cycle insurance impact is much smaller. At the mean, a one standard deviation hours shock raises life-time income by 11%, a wage shock by 13%.
Subjects: 
consumption insurance
labor supply
earnings risk
structural estimation
progressive taxation
JEL: 
D31
J22
J31
Document Type: 
Working Paper

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