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Do Students Expect Compensation for Wage Risk?

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Author Info
Jürg Schweri () (EHB Schweiz)
Stefan C. Wolter () (Institute of Economics, University of Berne)
Joop Hartog

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Abstract

We use a unique data set about the future wage distribution that Swiss students expect for themselves ex-ante, suggesting that students use very little private information about their wage prospects. Expectations appear much more anchored to perceptions of actual contemporaneous market data. Students even anticipate that the market provides compensation for risk, as has been established with Risk Augmented Mincer earnings equations estimated on market data: higher wage risk for educational groups is associated with higher mean wages. With observations on risk as expected by students we find compensation at similar elasticities as observed in market data. The results are robust to different specifications and estimation models.

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Publisher Info
Paper provided by University of Zurich, Institute for Strategy and Business Economics (ISU) in its series Economics of Education Working Paper Series with number 0011.

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Length: 40 pages
Date of creation: Jan 2008
Date of revision:
Handle: RePEc:iso:educat:0011

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Related research
Keywords: wage; expectations; wage risk; risk compensation; skewness;

Other versions of this item:

Find related papers by JEL classification:
D8 - Microeconomics - - Information, Knowledge, and Uncertainty
I2 - Health, Education, and Welfare - - Education
J2 - Labor and Demographic Economics - - Demand and Supply of Labor
J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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References listed on IDEAS
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    Other versions:
  2. Joop Hartog & Erik Plug & Luis Diaz Serrano & Jose Vieira, 2003. "Risk compensation in wages – a replication," Empirical Economics, Springer, vol. 28(3), pages 639-647, July. [Downloadable!] (restricted)
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  4. Cunha, Flavio & Heckman, James J., 2007. "Identifying and Estimating the Distributions of Ex Post and Ex Ante Returns to Schooling," Labour Economics, Elsevier, vol. 14(6), pages 870-893, December. [Downloadable!] (restricted)
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  6. McGoldrick, Kimmarie & Robst, John, 1996. "The Effect of Worker Mobility on Compensating Wages for Earnings Risk," Applied Economics, Taylor and Francis Journals, vol. 28(2), pages 221-32, February. [Downloadable!] (restricted)
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    Other versions:
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  9. Flavio Cunha & James J. Heckman & Salvador Navarro, 2005. "Separating Uncertainty from Heterogeneity in Life Cycle Earnings," NBER Working Papers 11024, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  20. McDonald, James B, 1984. "Some Generalized Functions for the Size Distribution of Income," Econometrica, Econometric Society, vol. 52(3), pages 647-63, May. [Downloadable!] (restricted)
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