Wage Risk and the Skill Premium

Ctirad Slavik and Hakki Yazici ()

CERGE-EI Working Papers from The Center for Economic Research and Graduate Education - Economics Institute, Prague

Abstract: The skill premium has increased significantly in the United States in the last five decades. During the same period, individual wage risk has also increased. This paper proposes a mechanism through which a rise in wage risk increases the skill premium. Intuitively, a rise in uninsured wage risk increases precautionary savings, thereby boosting capital accumulation, which increases the skill premium due to capital-skill complementarity. Using a quantitative macroeconomic model, we find that the rise in wage risk observed between 1967 and 2010 increases the skill premium significantly. This finding is robust across a variety of model specifications.

Keywords: skill premium; wage risk; capital-skill complementarity; precautionary savings (search for similar items in EconPapers)
JEL-codes: E25 J31 (search for similar items in EconPapers)
Date: 2017-12
New Economics Papers: this item is included in nep-lma and nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Wage Risk and the Skill Premium (2022)
Working Paper: Wage Risk and the Skill Premium (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cer:papers:wp609

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