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Compensation for Earnings Risk under Worker Heterogeneity

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Author Info

  • Berkhout, Peter

    ()
    (RIGO Research Institute)

  • Hartog, Joop

    ()
    (University of Amsterdam)

  • Webbink, Dinand

    ()
    (Erasmus University Rotterdam)

Abstract

We use two large Dutch datasets to estimate the Risk Augmented Mincer equation and test for risk compensation in expected earnings. We replicate earlier findings of a positive premium for risk and a negative premium for skew and add confirmation of the key results if we control for individual ability. We find that immigrants have graduated in more risky educations but obtain identical risk compensation. Among recent graduates, women receive higher risk compensation than men, consistent with their higher risk aversion, while for a labour force cross-section, lower average compensation for women is consistent with their presence in less risky educations. Lower average compensation for vocational graduates than for university graduates is consistent with presumed higher risk aversion and lower observed risk.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2074.

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Length: 27 pages
Date of creation: Apr 2006
Date of revision:
Publication status: published in: Southern Economic Journal, 2010, 76 (3), 762–790
Handle: RePEc:iza:izadps:dp2074

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Keywords: earnings function; risk; wages;

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  1. Cunha, Flavio & Heckman, James J. & Navarro, Salvador, 2004. "Separating Uncertainty from Heterogeneity in Life Cycle Earnings," IZA Discussion Papers, Institute for the Study of Labor (IZA) 1437, Institute for the Study of Labor (IZA).
  2. Steven J. Davis & Paul Willen, 2013. "Occupation-Level Income Shocks and Asset Returns: Their Covariance and Implications for Portfolio Choice," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., World Scientific Publishing Co. Pte. Ltd., vol. 3(03), pages 1350011-1-1.
  3. Ignacio Palacios-Huerta, 2003. "An Empirical Analysis of the Risk Properties of Human Capital Returns," American Economic Review, American Economic Association, American Economic Association, vol. 93(3), pages 948-964, June.
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Cited by:
  1. Marvasti, Akbar, 2008. "Occupational Safety and English Language Proficiency," MPRA Paper, University Library of Munich, Germany 14490, University Library of Munich, Germany, revised Mar 2009.
  2. Wolfgang Nagl, 2012. "Wage Compensations Due to Risk Aversion andSkewness Affection – German Evidence," Ifo Working Paper Series, Ifo Institute for Economic Research at the University of Munich Ifo Working Paper No. 145, Ifo Institute for Economic Research at the University of Munich.

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