We discuss recent developments in the literature that studies how the dynamics of earnings and wages affect consumption … choices over the life cycle. We start by analyzing the theoretical impact of income changes on consumption - highlighting the … contributions, distinguishing between papers that use only income data and those that use both income and consumption data. The …

frictions that allows us to distinguish between different sources of risk and to estimate their effects. The sources of risk are … heterogeneity. In contrast to simpler models that attribute all income fluctuations to shocks, our framework disentangles … variability due to shocks from variability due to the responses to these shocks. Estimates of productivity risk, once we control …

-household income insurance mechanism strongly biases upward the welfare losses from idiosyncratic wage risk as well as the desired … of consumption insurance against shocks to male and female wages, as estimated empirically by Blundell, Pistaferri and … extent of public insurance through progressive income taxation. Relative to the standard one-earner life cycle model, the …

Efforts to reconcile inconsistencies between theory and estimates of the income elasticity of the value of a … how exogenous income shocks, such as unexpected medical expenditures, may affect labor supply decisions which in turn … influence both the coefficient of relative risk aversion and the IEVSL. The presence of a consumption commitment, such as a home …

This paper develops a method of estimating the coefficient of relative risk aversion (g) from data on labor supply. The … beyond those of expected utility theory. It is shown that the curvature of the utility function is directly related to the … ratio of the income elasticity of labor supply to the wage elasticity, holding fixed the degree of complementarity between …

instrumental variables estimates of the sensitivity of income to changes in tax rates. From 1979 to 1981, the US income tax … changes in income between taxpayers close to the top-end of a tax bracket to the other taxpayers. These estimates, based on … comparisons between very similar groups, are robust to underlying changes in the income distribution, such as a rise in inequality …

Using a model with constant relative risk-aversion preferences, endogenous labor supply and partial insurance against … idiosyncratic wage risk, we provide an analytical characterization of three welfare effects: (a) the welfare effect of a rise in … wage dispersion, (b) the welfare gain from completing markets, and (c) the welfare effect from eliminating risk. Our …

find work, and prefer to do so even at wages below the prevailing wage rather than remain unemployed. However, they rarely …

In this paper we develop and estimate a factor model of the earnings, labor supply, and wages of young men and young … primarily due to preferences rather than to labor supply responses to family similarities in wages. The wage factors of the … father and mother influence the wages of both sons and daughters. A `sibling' wage factor also plays an important role in …