Working Paper: NBER ID: w0603
Authors: James N. Brown
Abstract: Section I of this paper develops a model of income insurance in the labor market. The model differs from those of previous analyses in its focus on quantitative implications regarding the degree to which wages diverge from marginal value products, both in time-series and in cross-section data. Sections II and III present empirical evidence consistent with these implications. The main empirical finding is that of short-term divergence, but long-term equality between wages and marginal value products. The labor market appears to differ from an auction market only in the short run, but this short-run divergence considerably reduces the potential variability of employees' realized wealth.
Keywords: Labor Contracts; Risk Aversion; Income Insurance; Labor Market Dynamics
JEL Codes: J30; J41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| employee risk aversion (D81) | divergence of wages from marginal value products (J31) |
| income uncertainty (D89) | divergence of wages from marginal value products (J31) |
| divergence of wages from marginal value products (J31) | layoffs (J63) |
| wages (J31) | efficiency in labor allocation (J29) |
| product demand fluctuations (J23) | wage-setting (J38) |
| wage-setting (J38) | layoffs (J63) |
| wage-setting (J38) | divergence of wages from marginal value products (J31) |