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Better safe than sorry? The effects of income risk, unemployment risk and the interaction of these risks on wages

  • Wolfgang Nagl


We examine whether income and unemployment risks are compensated by individual wages. Using a portfolio approach we show that the marginal income risk effect on wages is always positive whereas the marginal unemployment risk effect crucially depends on the income risk. The interaction effect between both risk measures is negative. Using administrative panel data from Germany we confirm the theoretically predicted signs for both risks and their interaction effect.

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa13p237.

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Date of creation: Nov 2013
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Handle: RePEc:wiw:wiwrsa:ersa13p237
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  1. Diaz-Serrano, Luis & Hartog, Joop & Nielsen, Helena Skyt, 2003. "Compensating Wage Differentials for Schooling Risk in Denmark," IZA Discussion Papers 963, Institute for the Study of Labor (IZA).
  2. Werner Smolny, 2009. "Wage Adjustment, Competitiveness and Unemployment – East Germany after Unification," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 229(2-3), pages 130-145, June.
  3. Gabriella Berloffa & Peter Simmons, 2003. "Unemployment Risk, Labour Force Participation and Savings," Review of Economic Studies, Wiley Blackwell, vol. 70(3), pages 521-539, 07.
  4. Moretti, Enrico, 2000. " Do Wages Compensate for Risk of Unemployment? Parametric and Semiparametric Evidence from Seasonal Jobs," Journal of Risk and Uncertainty, Springer, vol. 20(1), pages 45-66, January.
  5. Joop Hartog & Erik Plug & Luis Diaz Serrano & Jose Vieira, 2003. "Risk compensation in wages – a replication," Empirical Economics, Springer, vol. 28(3), pages 639-647, July.
  6. René Fahr & Uwe Sunde, 2009. "Did the Hartz Reforms Speed-Up the Matching Process? A Macro-Evaluation Using Empirical Matching Functions," German Economic Review, Verein für Socialpolitik, vol. 10, pages 284-316, 08.
  7. Schmucker, Alexandra & Seth, Stefan, 2009. "BA-Beschäftigtenpanel 1998-2007 Codebuch," FDZ Datenreport. Documentation on Labour Market Data 200901_de, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
  8. Allan G. King, 1974. "Occupational choice, risk aversion, and wealth," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 27(4), pages 586-596, July.
  9. repec:iab:iabzaf:v:43:i:2:p:125-143 is not listed on IDEAS
  10. Moore, Michael J, 1995. "Unions, Employment Risks, and Market Provision of Employment Risk Differentials," Journal of Risk and Uncertainty, Springer, vol. 10(1), pages 57-70, January.
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