Hours risk and wage risk: repercussions over the life‐cycle

We decompose earnings risk into contributions from hours and wage shocks. To distinguish between shocks, modeled as innovations to the marginal disutility of work, labor supply reactions shocks we formulate a life-cycle model consumption supply. For estimation use data on married American men PSID. Permanent explain 31% total risk, permanent 21%. Progressive taxation attenuates cross-sectional but its insurance impact is much smaller. At mean, one standard deviation shock raises life-time income by 11%, 13%. This article protected copyright. All rights reserved.