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Wage Risk, Employment Risk, and the Rise in Wage Inequality

Ariel Mecikovsky and Felix Wellschmied
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Ariel Mecikovsky: Universitaet Bonn
Felix Wellschmied: ITAM and Universidad Carlos III de Madrid

No 52, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: We study trends in US male labor market risk over the last three decades accounting for workers’ endogenous employment and job mobility decisions. The risk stemming from permanent shocks to idiosyncratic productivity and heterogeneity in pay across offered jobs has increased for most workers. These increases explain 75 percent of the increase in residual wage inequality. On-the-job search decisions of high skilled workers and labor market participation decisions of low skilled workers provide effective insurance mechanisms leading to moderate welfare changes. Unemployment benefits and disability insurance have become more valuable, but scaling back their generosity would still be welfare improving.

New Economics Papers: this item is included in nep-dge and nep-ias
Date: 2018
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