Felix Wellschmied, Universidad Carlos III de Madrid

"Wage Risk, Employment Risk, and the Rise in Wage Inequality"


Using a structural labor market model, we estimate for most US male workers an increase in the dispersion of idiosyncratic productivity shocks and an increase in the heterogeneity in pay across offered jobs between 1983-2013. These changes explain most of the increase in residual wage inequality and, depending on education, between 18 and 32 percent of the decreases in the aggregate employment and labor force participation rates. The higher uncertainty reduces the welfare of workers, and this effect is strongest for those with little education. Expanding the welfare state as a response to increasing uncertainty fails to increase workers' welfare.

Joint with Ariel Mecikovsky

Contact person: John Vincent Kramer