WAGE VOLATILITY AND CHANGING PATTERNS OF LABOR SUPPLY

Jay H. Hong, Byoung Hoon Seok, Hye Mi You

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

Over the past few decades, the skilled–unskilled hours differential for U.S. men increased when the skill premium rose sharply, in contrast with dominant income effects. Based on PSID data, we show that over the 1967–2000 period, skilled men experienced a three times larger increase in wage volatility than unskilled men. With the rise in wage volatility, our general equilibrium incomplete markets model generates a 2.7 hours increase in the hours differential whereas it increased by 1.4 hours in the data. We find that hours adjustments are important for self-insurance in the short run, whereas precautionary savings play a crucial role eventually.

Original languageEnglish
Pages (from-to)595-630
Number of pages36
JournalInternational Economic Review
Volume60
Issue number2
DOIs
StatePublished - May 2019

Bibliographical note

Funding Information:
1We want to thank editor Dirk Krueger and the three anonymous referees for their extremely insightful comments and suggestions. We are also grateful to Mark Aguiar, Mark Bils, Yongsung Chang, and seminar participants at various institutions for their invaluable comments. Kyooho Kwon and Jinhee Woo provided excellent research assistance. This work is supported by the Research Resettlement Fund for the new faculty of Seoul National University. Please address correspondence to: Hye Mi You, College of Economics and Finance, Hanyang University, 222 Wangsimni-ro, Seongdong-gu, Seoul 04763, South Korea. Phone: +82-2-2220-2580. Fax: +82-2-2296-9587. E-mail: hyemi.you@gmail.com.

Publisher Copyright:
© (2018) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association

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