This paper analyzes the optimal response of the social insurance system to a rise in labor market risk. To this end, we … develop a tractable macroeconomic model with risk-free physical capital, risky human capital (labor market risk) and … (human capital) risk increases social welfare if the government adjusts the tax-and-transfer system optimally. Finally, we …

This paper uses annual data drawn from the GSOEP to estimate individual earnings risk (labor market risk) in Germany … shocks to individual earnings. We find that both the transitory component and the permanent component of earnings risk have … been rising in West Germany in the 1990s and have remained at elevated levels in the 2000s. In contrast, labor market risk …