We decompose permanent earnings risk into contributions from hours and wage shocks. In order to distinguish between … role in explaining the cross-sectional variance in earnings growth, but wage risk has greater relevance. Allowing for hours … shocks improves the model fit considerably. The empirical strategy allows for the estimation of the Marshallian labor supply …

We extend the canonical income process with persistent and transitory risk to shock distributions with left …-skewness and excess kurtosis, to which we refer as higherorder risk. We estimate our extended income process by GMM for household … show that in a standard incomplete-markets life-cycle model, first, higher-order risk has sizable welfare implications …

We decompose permanent earnings risk into contributions from hours and wage shocks. To distinguish between hours shocks …-cycle model of consumption and labor supply. Both permanent wage and hours shocks are important to explain earnings risk, but wage … shocks have greater relevance. Progressive taxation strongly attenuates cross-sectional earnings risk, its life …