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Career Choice and the Risk Premium in the Labor Market

Listed author(s):
  • German Cubas

    (University of Houston)

  • Pedro Silos

    (Temple University)

We find a strong, robust, and positive correlation between average earnings and the standard deviation of both temporary and permanent idiosyncratic shocks to earnings across 19 US industries. Is this compensation for risk or for unobserved abilities? To answer this question we embed a Roy model into an incomplete markets equilibrium framework that features risk averse individuals who face industry-specific idiosyncratic shocks to their labor earnings. The interaction between earnings shocks and an individual's comparative advantage determines the optimal industry choice. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2017.02.009
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 26 (2017)
Issue (Month): (October)
Pages: 1-18

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Handle: RePEc:red:issued:15-44
DOI: 10.1016/j.red.2017.02.009
Contact details of provider: Postal:
Marina Azzimonti, Department of Economics, Stonybrook University, 10 Nicolls Road, Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/red/
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  1. Fatih Guvenen, 2009. "An Empirical Investigation of Labor Income Processes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 58-79, January.
  2. Peter Gottschalk & Minh Huynh, 2010. "Are Earnings Inequality and Mobility Overstated? The Impact of Nonclassical Measurement Error," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 302-315, May.
  3. Neumuller, Seth, 2015. "Inter-industry wage differentials revisited: Wage volatility and the option value of mobility," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 38-54.
  4. A. D. Roy, 1951. "Some Thoughts On The Distribution Of Earnings," Oxford Economic Papers, Oxford University Press, vol. 3(2), pages 135-146.
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