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Do Wages Compensate for Risk of Unemployment? Parametric and Semiparametric Evidence from Seasonal Jobs

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Abstract

Due to unique institutional and technological factors, seasonal agricultural jobs are characterized by much higher risk of unemployment than similar permanent jobs. I estimate compensating differentials for risk of unemployment and compare those with unemployment insurance benefits provided by the government. I use two sets of estimators. First, I calculate parametric estimates with Heckman correction. Second, I compute three versions of a distribution-free semiparametric estimator which is robust to misspecification of the residual distribution. The main finding of the paper is that there exists a positive compensating differential of 15.5% of the average wage. This corresponds to an implicit replacement rate significantly larger than the typical unemployment benefit.

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Authors and Affiliations

  1. Department of Economics, University of California at Berkeley, Evans Hall, Berkeley, CA, 94720

    Enrico Moretti

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  1. Enrico Moretti
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Moretti, E. Do Wages Compensate for Risk of Unemployment? Parametric and Semiparametric Evidence from Seasonal Jobs. Journal of Risk and Uncertainty 20, 45–66 (2000). https://doi.org/10.1023/A:1007862603025

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