Paul Scanlon, Economic Letters, published in September 2020.
Abstract:
Integrating elements of finance and labor theory, I quantify the degree to which aggregate risk affects wage premia. In the model, wages are stochastic, covary with the state of the economy, and command a risk premium. Using asset price data, I develop a lower bound for this premium, and show that it is quantitatively large for highly cyclical jobs with volatile labor compensation. By raising top incomes, this channel has played a role in amplifying income inequality.