Human Capital and Long-Run Labor Income Risk

24 Pages Posted: 30 Nov 2013

See all articles by Luca Benzoni

Luca Benzoni

Federal Reserve Bank of Chicago - Research Department

Olena Chyruk

Federal Reserve Bank of Chicago

Date Written: November 29, 2013

Abstract

This review article examines the role of labor income risk in determining the value of a person's human capital. We draw on the existing literature to present a model that incorporates various types of shocks to earnings. Within this framework, we highlight the implications of different assumptions about the correlation between market returns and labor income growth for the value of human capital and its riskiness. Further, the article surveys other work that applies similar ideas to assess the value and risk of pension promises. Finally, we discuss how to enrich the environment with heterogeneity in preferences and stock market exposures; endogenous labor supply and retirement decisions; health shocks; and human capital investment.

Keywords: human capital, labor income risk, portfolio choice, life cycle

JEL Classification: G12, G11

Suggested Citation

Benzoni, Luca and Chyruk, Olena, Human Capital and Long-Run Labor Income Risk (November 29, 2013). Available at SSRN: https://ssrn.com/abstract=2361497 or http://dx.doi.org/10.2139/ssrn.2361497

Luca Benzoni (Contact Author)

Federal Reserve Bank of Chicago - Research Department ( email )

230 South LaSalle Street
Chicago, IL 60604
United States
312-322-8499 (Phone)

HOME PAGE: http://lbenzoni.frbchi.googlepages.com/

Olena Chyruk

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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