Wage Risk and the Skill Premium

Ctirad  Slavik; Hakki Yazici

doi:10.1093/ej/ueac015

Wage Risk and the Skill Premium

Ctirad Slavik, Hakki Yazici^*

^*Corresponding author for this work

School of Economics

Research output: Contribution to journal › Article (Academic Journal) › peer-review

1 Citation (Scopus)

1 Downloads (Pure)

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.

Original language	English
Pages (from-to)	2207-2230
Number of pages	24
Journal	Economic Journal
Volume	132
Issue number	646
Early online date	8 Feb 2022
DOIs	https://doi.org/10.1093/ej/ueac015
Publication status	Published - 1 Aug 2022

Access to Document

10.1093/ej/ueac015

Full-text PDF (accepted manuscript)
This is the accepted author manuscript (AAM). The final published version (Version of Record) can be found on the publisher's website. The copyright of any third-party content, such as images, remains with the copyright holder.
Accepted author manuscript, 383 KBLicence: Unspecified

Handle.net

Persistent link

Cite this

@article{9d35d0eb30b246a091021c43f37ba906,

title = "Wage Risk and the Skill Premium",

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.",

author = "Ctirad Slavik and Hakki Yazici",

year = "2022",

month = aug,

day = "1",

doi = "10.1093/ej/ueac015",

language = "English",

volume = "132",

pages = "2207--2230",

journal = "Economic Journal",

issn = "0013-0133",

publisher = "Wiley-Blackwell",

number = "646",

}

TY - JOUR

T1 - Wage Risk and the Skill Premium

AU - Slavik, Ctirad

AU - Yazici, Hakki

PY - 2022/8/1

Y1 - 2022/8/1

N2 - 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.

AB - 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.

U2 - 10.1093/ej/ueac015

DO - 10.1093/ej/ueac015

M3 - Article (Academic Journal)

SN - 0013-0133

VL - 132

SP - 2207

EP - 2230

JO - Economic Journal

JF - Economic Journal

IS - 646

ER -

Wage Risk and the Skill Premium

Abstract

Access to Document

Handle.net

Fingerprint

Cite this