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Product Market Volatility and the Adjustment of Earnings to Risk
Author(s) -
Magnani Elisabetta
Publication year - 2002
Publication title -
industrial relations: a journal of economy and society
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.61
H-Index - 57
eISSN - 1468-232X
pISSN - 0019-8676
DOI - 10.1111/1468-232x.00247
Subject(s) - volatility (finance) , unemployment , earnings , economics , covariance , market risk , econometrics , wage , volatility risk premium , financial economics , implied volatility , labour economics , macroeconomics , finance , statistics , mathematics
This investigation of compensating wage differentials uses an instrument for the risk of unemployment, namely, the industry‐specific shipment volatility, to address some empirical anomalies found in the literature. I find that risk premiums for the risk of unemployment range from 8.5 to 19 percent when the covariance between shipment volatility and total manufacturing employment is taken into account. Covariance risk requires positive premiums that range from 1.4 to 14 percent depending on the specification.