Working Paper: NBER ID: w23163
Authors: Fatih Guvenen; Sam Schulhofer-Wohl; Jae Song; Motohiro Yogo
Abstract: The magnitude of and heterogeneity in systematic earnings risk has important implications for various theories in macro, labor, and financial economics. Using administrative data, we document how the aggregate risk exposure of individual earnings to GDP and stock returns varies across gender, age, the worker’s earnings level, and industry. Aggregate risk exposure is U-shaped with respect to the earnings level. In the middle of the earnings distribution, aggregate risk exposure is higher for males, younger workers, and those in construction and durable manufacturing. At the top of the earnings distribution, aggregate risk exposure is higher for older workers and those in finance. Workers in larger employers are less exposed to aggregate risk, but they are more exposed to a common factor in employer-level earnings, especially at the top of the earnings distribution. Within an employer, higher-paid workers have higher exposure to the employer-level risk than lower-paid workers.
Keywords: systematic earnings risk; labor economics; macroeconomics; income risk
JEL Codes: E24; E32; G11; G12; J31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GDP growth (O49) | aggregate risk exposure (E10) |
| stock returns (G12) | aggregate risk exposure (E10) |
| earnings levels (J31) | aggregate risk exposure (E10) |
| gender (J16) | earnings risk exposure (G17) |
| age (J14) | aggregate risk exposure (E10) |
| industry characteristics (L81) | earnings risk exposure (G17) |
| employer size (J23) | aggregate risk exposure (E10) |
| employer size (J23) | employer-level earnings risk (J31) |