Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70670
Authors: 
Cubas, German
Silos, Pedro
Year of Publication: 
2012
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2012-15
Abstract: 
Using the Survey of Income and Program Participation (SIPP), we document a significant and positive association between earnings risk (both permanent and transitory) and the level of earnings across 21 industries. We propose an equilibrium framework to analyze the interplay between earnings volatility and the distribution of skills across workers in determining a relationship between earnings and risk. We use the model to decompose how much of the empirical correlation represents compensation for risk and how much represents selection. The positive association between permanent risk and earnings is compensation for risk, but selection is responsible for the observed relationship between temporary risk and the level of earnings.
Subjects: 
selection
compensating differential
precautionary savings
earnings inequality
JEL: 
E21
E24
J24
J31
Document Type: 
Working Paper

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