Wage Risk, Employment Risk and the Rise in Wage Inequality

51 Pages Posted: 10 Jan 2017

See all articles by Ariel Mecikovsky

Ariel Mecikovsky

University of Bonn

Felix Wellschmied

Charles III University of Madrid

Abstract

We estimate the changes in US male labor market risk over the last three decades in a model of endogenous labor supply and job mobility. Across education groups permanent shocks to productivity have become more dispersed. Moreover, heterogeneity in pay across offered jobs has increased for workers with at least some college education. Simulating these changes in a life-cycle model with search frictions, we show that the estimated changes in risk can account for 85 percent of the increase in within group wage inequality. The welfare costs of rising risk are small.

Keywords: wage risk, secular trends, insurance

JEL Classification: D91, J11, J22, J31, J64

Suggested Citation

Mecikovsky, Ariel and Wellschmied, Felix, Wage Risk, Employment Risk and the Rise in Wage Inequality. IZA Discussion Paper No. 10451, Available at SSRN: https://ssrn.com/abstract=2895299 or http://dx.doi.org/10.2139/ssrn.2895299

Ariel Mecikovsky (Contact Author)

University of Bonn ( email )

Felix Wellschmied

Charles III University of Madrid ( email )

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