Work harder in periods of recessions?
The intuition is that in response to an uninsurable wage schock, the unlucky ones will have to work harder to make up for the loss in earnings, provided that the risk aversion is reasonably high. Therefore, larger uninsurable risk will reduce average productivity and aggregate consumption. Conversely, larger insurable risk will allow workers to take advantage of working more in periods when they are more productive, which in turn will increase average productivity per hour and aggregate consumption.
The idea of the sub project is to study the aggregate effects of time-varying inequality.