skip to content

Faculty of Economics

Journal Cover

Low, H. W., Meghir, C. and Pistaferri, L.

Wage risk and employment risk over the life cycle

American Economic Review

Vol. 100(4) pp. 1432-1467 (2010)

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 Codes: D91, J22, J31, J61, J64, J65

Author links:

Publisher's Link:

Papers and Publications

Recent Publications

Merrick Li, Z. and Linton, O. A ReMeDI for Microstructure Noise Econometrica [2022]

Bhattacharya, D. and Shvets, J. Inferring Trade-Offs in University Admissions: Evidence from Cambridge Journal of Political Economy, accepted [2023]

Ding, Y. A Simple Joint Model for Returns, Volatility and Volatility of Volatility Journal of Econometrics [2023]

Freund, L. B., Lee, H. and Rendahl, P. The Risk-Premium Channel of Uncertainty: Implications for Unemployment and Inflation Review of Economic Dynamics, forthcoming [2023]