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Hours Risk and Wage Risk: Repercussions over the Life Cycle

Referierte Aufsätze Web of Science

Robin Jessen, Johannes König

In: The Scandinavian Journal of Economics 125 (2023), 4, S. 956-996


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 Panel Study of Income Dynamics. Permanent wage shocks explain 31 percent of total risk, permanent hours shocks 21 percent. 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 lifetime income by 11 percent, a wage shock by 13 percent.

Johannes König

Research Associate in the German Socio-Economic Panel study Department