Wage Risk and the Skill Premium

Ctirad Slavík and Hakki Yazici

No 8520, CESifo Working Paper Series from CESifo

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: 2020
New Economics Papers: this item is included in nep-lma and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp8520.pdf (application/pdf)

Related works:
Journal Article: Wage Risk and the Skill Premium (2022)
Working Paper: Wage Risk and the Skill Premium (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8520

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().