The effect of worker mobility on compensating wages for earnings risk

The effects of worker mobility on the payment of compensating wage differentials for earnings risk are examined. Previous research consistently finds compensating wages are paid to workers facing earnings uncertainty. However, job shopping models suggest that if workers have sufficient mobility, they may prefer uncertain situations. Here, simultaneous equations are estimated where both wages and worker mobility are endogenous to examine whether workers with greater uncertainty have greater mobility and whether workers with greater mobility receive lower compensating wage differentials. Results indicate that workers facing more uncertainty have a greater degree of mobility. Also, workers with greater mobility receive lower compensation for income uncertainty, although on average this compensation is positive. These results are consistent with the traditional model predictions and supportive of job shopping models.