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Comparative Advantage and Risk Premia in Labor Markets

German Cubas () and Pedro Silos ()

No 2012009, Documentos de trabajo from Banco Central del Uruguay

Abstract: Using the Survey of Income and Program Participation (SIPP) we estimate quarterly labor earnings risk across 21 industries of the US economy. We document a significant and positive association between earnings risk (both permanent and transitory) and average log-earnings across industries. The Finance sector is 50% riskier than Government which implies a mean earnings premium of 20%. We develop an equilibrium framework to analyze the interplay between volatility in labor earnings and comparative advantage in determining the level of earnings across industries. We use the model to decompose how much of the empirical correlation represents compensation for risk and how much represents selection. The positive association between permanent risk and earnings is compensation for risk, but selection is responsible for the observed relationship between temporary risk and mean earnings.

Pages: 54 pages
Date: 2012-11
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https://www.bcu.gub.uy/Estadisticas-e-Indicadores/ ... 20Trabajo/9.2012.pdf First version, 2012 (application/pdf)

Related works:
Working Paper: Comparative Advantage and Risk Premia in Labor Markets (2013) Downloads
Working Paper: Comparative Advantage and Risk Premia in Labor Markets (2013) Downloads
Working Paper: Comparative advantage and risk premia in labor markets (2012) Downloads
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