Risk and the Misallocation of Human Capital

German Cubas (), Pedro Silos and Vesa Soini ()
Additional contact information
German Cubas: Department of Economics, University of Houston
Vesa Soini: Department of Economics, Hanken School of Economics and Helsinki Graduate School of Economics

No 2103, DETU Working Papers from Department of Economics, Temple University

Abstract: With risk-averse workers and uninsurable earnings shocks, competitive markets allocate too few workers to jobs with high earnings uncertainty. Using an equilibrium Roy model with incomplete markets we show that risky occupations are inefficiently small and hence talent is misallocated. We obtain analytical expressions for the compensation for risk in the labor market, and for the aggregate level of human capital and output. Misallocation is positively related to the correlation between a worker’s abilities in different occupations. Quantitatively we find that market incompleteness can by itself generate permanent output and welfare losses in the order of one percent of GDP.

Keywords: Misallocation; Human Capital; Occupations; Risk; Incomplete Markets; Frèchet; Roy Model. (search for similar items in EconPapers)
JEL-codes: D91 E21 J31 (search for similar items in EconPapers)
Date: 2021-08
New Economics Papers: this item is included in nep-hrm, nep-isf, nep-lma and nep-mac
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.cla.temple.edu/RePEc/documents/DETU_21_03.pdf First version, 2021 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tem:wpaper:2103

Access Statistics for this paper

More papers in DETU Working Papers from Department of Economics, Temple University Contact information at EDIRC.
Bibliographic data for series maintained by Dimitrios Diamantaras ().