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Compensating Wage Differentials for Schooling Risk in Denmark

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  • Luis Diaz-Serrano
  • Joop Hartog
  • Helena Skyt Nielsen

Abstract

In this paper we analyse the association between wage differentials and risk using detailed information on length and type of education as seen in Danish administrative registers. Our contribution to the literature is that we distinguish between transitory (time-series) and permanent (cross-sectional) income shocks, and estimate the compensation for both sorts of risk. We find that wage risk in a given education cell is associated with higher wages, while skewness is associated with lower wages. As a robustness check, we see that ad hoc risk measures based on earnings-mobility indicators confirm these findings. Copyright � The editors of the "Scandinavian Journal of Economics" 2008 .

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 110 (2008)
Issue (Month): 4 (December)
Pages: 711-731

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Handle: RePEc:bla:scandj:v:110:y:2008:i:4:p:711-731

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References

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  1. Martin Browning & Mette Ejrn�s & Javier Alvarez, 2010. "Modelling Income Processes with Lots of Heterogeneity," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1353-1381.
  2. Joop Hartog & Luis Díaz-Serrano, 2007. "Earnings risk and demand for higher education: A cross-section test for Spain," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 1-28, May.
  3. Belzil, Christian & Hansen, Jörgen, 2002. "Earnings Dispersion, Risk Aversion and Education," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3600, C.E.P.R. Discussion Papers.
  4. Joop Hartog & Erik Plug & Luis Diaz Serrano & Jose Vieira, 2003. "Risk compensation in wages – a replication," Empirical Economics, Springer, Springer, vol. 28(3), pages 639-647, July.
  5. Harmon, Colm & Hogan, Vincent & Walker, Ian, 2001. "Dispersion in the Economic Return to Schooling," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3037, C.E.P.R. Discussion Papers.
  6. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-15, September.
  7. Pereira, Pedro T. & Martins, Pedro S., 2001. "Is there a Return-Risk Link in Education?," IZA Discussion Papers 321, Institute for the Study of Labor (IZA).
  8. Williams, Joseph T, 1979. "Uncertainty and the Accumulation of Human Capital over the Life Cycle," The Journal of Business, University of Chicago Press, vol. 52(4), pages 521-48, October.
  9. Olson, Lawrence & White, Halbert & Shefrin, H M, 1979. "Optimal Investment in Schooling when Incomes are Risky," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(3), pages 522-39, June.
  10. Christiansen, Charlotte & Nielsen, Helena Skyt, 2003. "The Educational Asset Market: A Finance Perspective on Human Capital Investment," Finance Working Papers, University of Aarhus, Aarhus School of Business, Department of Business Studies 02-9, University of Aarhus, Aarhus School of Business, Department of Business Studies.
  11. Kodde, David A, 1986. "Uncertainty and the Demand for Education," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 460-67, August.
  12. Hartog, Joop & Vijverberg, Wim P., 2002. "Do Wages Really Compensate for Risk Aversion and Skewness Affection?," IZA Discussion Papers 426, Institute for the Study of Labor (IZA).
  13. Hogan, Vincent & Ian Walker, 2002. "Education Choice under Uncertainty," Royal Economic Society Annual Conference 2002, Royal Economic Society 103, Royal Economic Society.
  14. Weiss, Yoram, 1972. "The Risk Element in Occupational and Educational Choices," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 80(6), pages 1203-13, Nov.-Dec..
  15. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-63, December.
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Citations

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Cited by:
  1. Luis Diaz-Serrano & J. Hartog, 2004. "Is there a Risk-Return Trade-off across Occupations? Evidence from Spain," Economics, Finance and Accounting Department Working Paper Series, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth n1441004, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  2. Luis Díaz-Serrano & Joop Hartog, 2006. "Is there a risk-return trade-off in educational choices? Evidence from Spain," Investigaciones Economicas, Fundación SEPI, Fundación SEPI, vol. 30(2), pages 353-380, May.
  3. Schweri, Juerg & Hartog, Joop & Wolter, Stefan C., 2011. "Do students expect compensation for wage risk?," Economics of Education Review, Elsevier, Elsevier, vol. 30(2), pages 215-227, April.
  4. Mazza, Jacopo & Hartog, Joop, 2011. "Do They Understand the Benefits from Education? Evidence on Dutch High School Students’ Earnings Expectations," IZA Discussion Papers 5714, Institute for the Study of Labor (IZA).
  5. Diaz-Serrano, Luis, 2004. "On the Negative Relationship between Labor Income Uncertainty and Homeownership: Risk Aversion vs. Credit Constraints," IZA Discussion Papers 1208, Institute for the Study of Labor (IZA).
  6. Wolfgang Nagl, 2014. "Lohnrisiko und Altersarmut im Sozialstaat," ifo Beiträge zur Wirtschaftsforschung, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, number 54, 8.
  7. Peter Schneider & Dieter Sadowski, 2008. "The impact of New Public Management (NPM) instruments on PhD education," IAAEG Discussion Papers until 2011 200803, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  8. Stark, Oded & Fan, C. Simon, 2010. "A Theory of Migration as a Response to Occupational Stigma," Economics Series, Institute for Advanced Studies 247, Institute for Advanced Studies.
  9. Budría, Santiago & Diaz-Serrano, Luis & Ferrer-i-Carbonell, Ada & Hartog, Joop, 2009. "Risk Attitude and Wage Growth: Replication and Reconstruction," IZA Discussion Papers 4124, Institute for the Study of Labor (IZA).
  10. Kässi, Otto, 2012. "Uncertainty and Heterogeneity in Returns to Education: Evidence from Finland," MPRA Paper 48738, University Library of Munich, Germany, revised 01 Aug 2013.
  11. Hartog, Joop & Vijverberg, Wim, 2007. "Schools, skills and risk," Economics of Education Review, Elsevier, Elsevier, vol. 26(6), pages 758-770, December.
  12. Wolfgang Nagl, 2012. "Wage Compensations Due to Risk Aversion andSkewness Affection – German Evidence," Ifo Working Paper Series Ifo Working Paper No. 145, Ifo Institute for Economic Research at the University of Munich.
  13. Diaz-Serrano, Luis & Hartog, Joop, 2004. "Is There a Risk-Return Trade-Off across Occupations? Evidence from Spain," IZA Discussion Papers 1355, Institute for the Study of Labor (IZA).
  14. Luis Diaz-Serrano, 2003. "Earnings Uncertainty, Risk-Aversion and Homeownership," Economics, Finance and Accounting Department Working Paper Series, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth n135020.pdf, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  15. Diaz-Serrano, Luis, 2004. "Labour Income Uncertainty, Risk Aversion and Home Ownership," IZA Discussion Papers 1008, Institute for the Study of Labor (IZA).
  16. Wolfgang Nagl, 2012. "Better Safe than Sorry? The Effects of Income Risk, Unemployment Risk and the Interaction of these Risks on Wages," Ifo Working Paper Series Ifo Working Paper No. 148, Ifo Institute for Economic Research at the University of Munich.

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