Comparative advantage and risk premia in labor markets

German Cubas () and Pedro Silos

No 2012-15, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: Using the Survey of Income and Program Participation (SIPP), we document a significant and positive association between earnings risk (both permanent and transitory) and the level of earnings across 21 industries. We propose an equilibrium framework to analyze the interplay between earnings volatility and the distribution of skills across workers in determining a relationship between earnings and risk. 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 the level of earnings.

Date: 2012
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Related works:
Working Paper: Comparative Advantage and Risk Premia in Labor Markets (2013)
Working Paper: Comparative Advantage and Risk Premia in Labor Markets (2013)
Working Paper: Comparative Advantage and Risk Premia in Labor Markets (2012)
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