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Worker Betas: Five Facts About Systematic Earnings Risk

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Abstract

The magnitude of and heterogeneity in systematic earnings risk has important implications for various theories in macro, labor, and financial economics. Using administrative data, we document how the aggregate risk exposure of individual earnings to GDP and stock returns varies across gender, age, the worker?s earnings level, and industry. Aggregate risk exposure is U-shaped with respect to the earnings level. In the middle of the earnings distribution, males, younger workers, and those in construction and durable manufacturing are more exposed to aggregate risk. At the top of the earnings distribution, older workers and those in finance are more exposed to aggregate risk. Workers in larger employers are less exposed to aggregate risk, but they are more exposed to a common factor in employer-level earnings, especially at the top of the earnings distribution. Within an employer, higher-paid workers have higher exposure to the employer-level risk than lower-paid workers.

Suggested Citation

  • Fatih Guvenen & Sam Schulhofer-Wohl & Motohiro Yogo, 2017. "Worker Betas: Five Facts About Systematic Earnings Risk," Working Paper Series WP-2017-4, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhwp:wp-2017-04
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    References listed on IDEAS

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    1. Jonathan A. Parker & Annette Vissing-Jorgensen, 2009. "Who Bears Aggregate Fluctuations and How?," American Economic Review, American Economic Association, vol. 99(2), pages 399-405, May.
    2. Sam Schulhofer-Wohl, 2011. "Heterogeneity and Tests of Risk Sharing," Journal of Political Economy, University of Chicago Press, vol. 119(5), pages 925-958.
    3. Maurizio Mazzocco & Shiv Saini, 2012. "Testing Efficient Risk Sharing with Heterogeneous Risk Preferences," American Economic Review, American Economic Association, vol. 102(1), pages 428-468, February.
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    More about this item

    Keywords

    GDP (gross domestic product); Income; Investments;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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