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Risk and the allocation of talent in the Roy model

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  • Cubas, German
  • Silos, Pedro
  • Soini, Vesa

Abstract

With risk-averse workers and uninsurable earnings shocks, competitive markets allocate too few workers to risky jobs. Using an equilibrium Roy model with incomplete markets, we show that in competitive equilibrium, risky occupations are inefficiently small and hence talent is misallocated.

Suggested Citation

  • Cubas, German & Silos, Pedro & Soini, Vesa, 2024. "Risk and the allocation of talent in the Roy model," Economics Letters, Elsevier, vol. 236(C).
    • Handle: RePEc:eee:ecolet:v:236:y:2024:i:c:s016517652400106x
    DOI: 10.1016/j.econlet.2024.111623
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    References listed on IDEAS

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    1. Miller, Robert A, 1984. "Job Matching and Occupational Choice," Journal of Political Economy, University of Chicago Press, vol. 92(6), pages 1086-1120, December.
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    3. Vollrath, Dietrich, 2014. "The efficiency of human capital allocations in developing countries," Journal of Development Economics, Elsevier, vol. 108(C), pages 106-118.
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    5. German Cubas & Pedro Silos, 2017. "Career Choice and the Risk Premium in the Labor Market," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 1-18, October.
    6. Jovanovic, Boyan, 1979. "Job Matching and the Theory of Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 972-990, October.
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    9. Chang‐Tai Hsieh & Erik Hurst & Charles I. Jones & Peter J. Klenow, 2019. "The Allocation of Talent and U.S. Economic Growth," Econometrica, Econometric Society, vol. 87(5), pages 1439-1474, September.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Misallocation; Occupations; Risk; Incomplete markets; Roy model;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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