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Career Choice and the Risk Premium in the Labor Market

German Cubas () and Pedro Silos ()

Review of Economic Dynamics, 2017, vol. 26, 1-18

Abstract: 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)

Keywords: Risk premium; Labor markets; Roy model; Incomplete markets (search for similar items in EconPapers)
JEL-codes: E21 D91 J31 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1016/

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