Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/223592
Authors: 
Slavík, Ctirad
Yazici, Hakki
Year of Publication: 
2020
Series/Report no.: 
CESifo Working Paper 8520
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.
Subjects: 
skill premium
wage risk
capital-skill complementarity
precautionary savings
JEL: 
E25
J31
Document Type: 
Working Paper

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