Universitat Pompeu Fabra
2018-04-26T09:02:21Z
2018-04-26T09:02:21Z
2018-03
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.
The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
Working document
English
Skill premium; Wage risk; Capital-skill complementarity; Precautionary savings
ADEMU Working Paper Series;88
info:eu-repo/grantAgreement/EC/H2020/649396
This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
https://creativecommons.org/licenses/by/4.0/
