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...

The enlargement of the European Monetary Union is likely to lead to an increase in uncertainty regarding the transmission of monetary policy for the larger union. Adding new members to the central bank council will in addition imply that the policy reaction of the enlarged council will be...

Workers in less secure jobs are often paid less than identical-looking workers in more secure jobs. We show that this lack of compensating differentials for unemployment risk can arise in equilibrium when all workers are identical and firms differ only in job security (i.e. the probability that...

We analyze whether a redistributive government should provide ex ante insurance against unfortunate outcomes or whether it should instead rely on transfers for redistributing income ex post. To this end, we develop a model of education in which individuals face educational risk and wage...

In a model with ex-ante homogenous households, earnings risk and a general earnings function, we derive the optimal linear labor tax rate and optimal linear education subsidies. The optimal income tax trades off social insurance against incentives to work and to invest in human capital....

This paper develops a tractable human capital model with limited enforceability of contracts. The model economy is populated by a large number of long-lived, risk-averse households with homothetic preferences who can invest in risk-free physical capital and risky human capital. Households have...

We develop a theoretical framework to explain firms' offshoring decisions in the presence of uncertainty. This model highlights the role of labor market institutions in shaping a firm's ability to effectively react upon future shocks, yielding a sharp prediction of the prevalence of offshoring...

This paper documents earnings dynamics over the life-cycle and income level using a large administrative database from German tax records. I find that labor earnings display important deviations from the typical assumptions of linearity and normality. For the bottom earners, large income changes...

This paper documents the role of unemployment and earnings risk in reconciling evidence in payoff differentials between self-employment and paid-employment. Using Spanish administrative data, we characterize the distribution and dynamics of earnings and document lower and less dispersed earnings...