Time-Varying Risk Premia, Labor Market Dynamics, and Income Risk / Maarten Meeuwis, Dimitris Papanikolaou, Jonathan L. Rothbaum, Lawrence D.W. Schmidt.

Format:

Book

Author/Creator:

Meeuwis, Maarten.

Contributor:

National Bureau of Economic Research.

Papanikolaou, Dimitris.

Rothbaum, Jonathan L.

Schmidt, Lawrence D.W.

Series:

Working Paper Series (National Bureau of Economic Research) no. w31968.

NBER working paper series no. w31968

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2023.

Summary:

We show that time variation in risk premia leads to time-varying idiosyncratic income risk for workers. Using US administrative data on worker earnings, we show that increases in risk premia lead to lower earnings for low-wage workers; these declines are primarily driven by job separations. By contrast, productivity shocks affect the earnings mainly of highly paid workers. We build an equilibrium model of labor market search that quantitatively replicates these facts. The model generates endogenous time-varying income risk in response to changes in risk premia and matches several stylized features of the data regarding unemployment and income risk over the business cycle.

Notes:

Print version record

December 2023.