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Education and Risk Compensation in Wages: A Quantile Regression Approach

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Listed:
  • Vieira, José António Cabral

    (University of the Azores)

  • Constância, Carolina

    (University of the Azores)

  • Teixeira, João

    (University of the Azores)

Abstract

This paper examines the effect of wage variation on individual wages. The results reveal that wage variation by educational classifications positively affects wages, while the skewness has a negative effect. As has been referred in previous literature on the issue, both results are consistent with the notion of wage compensation for risk-averse workers. However, our results show that the impact of wage-variation on wages is not reasonably described by a single parameter for all individuals. Such an effect is heterogeneous and varies throughout the conditional wage distribution. Indeed, the positive effect of dispersion increases, and the negative effect of skewness decreases, as we move up on the conditional wage distribution. Apparently, those at the upper end of the conditional wage distribution have both higher risk-aversion and higher affection for skewness.

Suggested Citation

  • Vieira, José António Cabral & Constância, Carolina & Teixeira, João, 2019. "Education and Risk Compensation in Wages: A Quantile Regression Approach," IZA Discussion Papers 12237, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp12237
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    References listed on IDEAS

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    1. Joop Hartog & Pedro Pereira & Jose Vieira, 2001. "Changing returns to education in Portugal during the 1980s and early 1990s: OLS and quantile regression estimators," Applied Economics, Taylor & Francis Journals, vol. 33(8), pages 1021-1037.
    2. Schweri, Juerg & Hartog, Joop & Wolter, Stefan C., 2011. "Do students expect compensation for wage risk?," Economics of Education Review, Elsevier, vol. 30(2), pages 215-227, April.
    3. Tsiang, S C, 1972. "The Rationale of the Mean-Standard Deviation Analysis, Skewness Preference, and the Demand for Money," American Economic Review, American Economic Association, vol. 62(3), pages 354-371, June.
    4. Juan Prieto-Rodriguez & Carlos Pestana Barros & Jose Vieira, 2008. "What a quantile approach can tell us about returns to education in Europe," Education Economics, Taylor & Francis Journals, vol. 16(4), pages 391-410.
    5. Luis Diaz‐Serrano & Joop Hartog & Helena Skyt Nielsen, 2008. "Compensating Wage Differentials for Schooling Risk in Denmark," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(4), pages 711-731, December.
    6. McGuinness, Seamus & Bennett, Jessica, 2007. "Overeducation in the graduate labour market: A quantile regression approach," Economics of Education Review, Elsevier, vol. 26(5), pages 521-531, October.
    7. Hartog, Joop & Vijverberg, Wim P.M., 2007. "On compensation for risk aversion and skewness affection in wages," Labour Economics, Elsevier, vol. 14(6), pages 938-956, December.
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    More about this item

    Keywords

    quantile regression; wage formation; education; risk compensation;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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