Using a calibrated general equilibrium overlapping generations model, which explicity accounts for differences between immigrants and natives, this paper investigates whether a reform of immigration policies alone could resolve the fiscal problems associated with the aging of the baby boom generation. Such policies are found to exist and are characterized by an increased inflow of working‐age high‐and medium‐skilled immigrants. One particular feasible policy involves admitting 1.6 million 40–44‐year‐old high‐skilled immigrants annually. These findings are illustrated by computing the discounted government gain of admitting additional immigrants, conditional on their age and skills.

In recent decades, American workers have faced a rising college premium, a narrowing gender gap, and increasing wage volatility. This paper explores the quantitative and welfare implications of these changes. The framework is an incomplete-markets life cycle model in which individuals choose education, intrafamily time allocation, and savings. Given the observed history of the U.S. wage structure, the model replicates key trends in cross-sectional inequality in hours worked, earnings, and consumption. Recent cohorts enjoy welfare gains, on average, as higher relative wages for college graduates and for women translate into higher educational attainment and a more even division of labor within the household.

Is individual labor income more risky in recessions? This is a difficult question to answer because existing panel data sets are so short. To address this problem, we develop a generalized method of moments estimator that conditions on the macroeconomic history that each member of the panel has experienced. Variation in the cross‐sectional variance between households with differing macroeconomic histories allows us to incorporate business cycle information dating back to 1930, even though our data do not begin until 1968. We implement this estimator using household‐level labor earnings data from the Panel Study of Income Dynamics. We estimate that idiosyncratic risk is (i) highly persistent, with an annual autocorrelation coefficient of 0.95, and (ii) strongly countercyclical, with a conditional standard deviation that increases by 75 percent (from 0.12 to 0.21) as the macroeconomy moves from peak to trough.