Wage Risk and the Skill Premium

56 Pages Posted: 28 Aug 2020

See all articles by Ctirad Slavík

Ctirad Slavík

Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences

Hakki Yazici

Sabanci University

Date Written: 2020

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.

Keywords: skill premium, wage risk, capital-skill complementarity, precautionary savings

JEL Classification: E250, J310

Suggested Citation

Slavík, Ctirad and Yazici, Hakki, Wage Risk and the Skill Premium (2020). CESifo Working Paper No. 8520, Available at SSRN: https://ssrn.com/abstract=3682020 or http://dx.doi.org/10.2139/ssrn.3682020

Ctirad Slavík (Contact Author)

Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences ( email )

Politickych veznu 7
Prague, 111 21
Czech Republic

Hakki Yazici

Sabanci University ( email )

School of Management
Orhanli Tuzla
İstanbul, 34956
Turkey

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
40
Abstract Views
227
PlumX Metrics