Two views of inequality over the life cycle

Data on the life-cycle profiles of inequality in wages, earnings, hours worked, and consumption contain precious information for answering questions about the ability of households to insure labor market risk and about the sources of this risk. This paper demonstrates that the choice of whether to control for cohort effects or for time effects has a drastic impact on the estimated age profiles for inequality and, thus on the answers to those questions. It also shows that time effects are required to account of the observed trends in inequality in 30 years of U.S. data, whereas there is no evidence that cohort effects have been important.