Comparative advantage and risk premia in labor markets
AbstractUsing the Survey of Income and Program Participation (SIPP), we document a significant and positive association between earnings risk (both permanent and transitory) and the level of earnings across 21 industries. We propose an equilibrium framework to analyze the interplay between earnings volatility and the distribution of skills across workers in determining a relationship between earnings and risk. We use the model to decompose how much of the empirical correlation represents compensation for risk and how much represents selection. The positive association between permanent risk and earnings is compensation for risk, but selection is responsible for the observed relationship between temporary risk and the level of earnings.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2012-15.
Date of creation: 2012
Date of revision:
Other versions of this item:
- Pedro Silos & GERMAN CUBAS, 2013. "Comparative Advantage and Risk Premia in Labor Markets," 2013 Meeting Papers 789, Society for Economic Dynamics.
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