Handbook of LABOR ECONOMICS
The objective of this chapter is to discuss recent developments in the literature that studies
how the dynamics of earnings and wages affect consumption choices over the life cycle.
Labor economists and macroeconomists are the main contributors to this area of research.
A theme of interest for both labor economics and macroeconomics is to understand how
much risk households face, to what extent risk affects basic household choices such as
consumption, labor supply and human capital investments, and what types of risks matter
in explaining behavior.1 These are questions that have a long history in economic...