Institutional Affiliation: National University of Singapore
|Unemployment and Development|
with , : w25171
This paper draws on household survey data from countries of all income levels to measure how average unemployment rates vary with income per capita. We document that unemployment is increasing with GDP per capita. Furthermore, we show that this fact is accounted for almost entirely by low-educated workers, whose unemployment rates are strongly increasing in GDP per capita, rather than by high-educated workers, whose unemployment rates are not correlated with income. To interpret these facts, we build a model with workers of heterogeneous ability and two sectors: a traditional sector, in which self-employed workers produce output without reward for ability; and a modern sector, in which firms hire in frictional labor markets, and output increases with ability. Countries differ exogenously ...
|The Impact of Entrepreneurial Risk Aversion on Wages in General Equilibrium|
with : w20992
One of the leading theories of entrepreneurship is that less risk averse individuals become entrepreneurs and more risk averse individuals become their employees. Kihlstrom and Laffont (1979) formalized this insight in an elegant and widely taught general equilibrium model. However, their model has not been further developed. A reason may be that their main comparative static result, that an economy-wide increase in risk aversion lowers the equilibrium wage, appeared to require the assumption that all agents had identical risk aversion index, throwing out their motivating insight and indicating that the model is intractable. In this note we prove this comparative static result on risk aversion and wages in general equilibrium, retaining agent heterogeneity in risk aversion and the endogeno...