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Do Students Expect Compensation for Wage Risk?

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Author Info

  • Schweri, Jürg

    ()
    (Swiss Federal Institute for Vocational Education and Training)

  • Hartog, Joop

    ()
    (University of Amsterdam)

  • Wolter, Stefan C.

    ()
    (University of Bern)

Abstract

We use a unique data set about the wage distribution that Swiss students expect for themselves ex ante, deriving parametric and non-parametric measures to capture expected wage risk. These wage risk measures are unfettered by heterogeneity which handicapped the use of actual market wage dispersion as risk measure in earlier studies. Students in our sample 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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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4069.

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Length: 27 pages
Date of creation: Mar 2009
Date of revision:
Publication status: published in: Economics of Education Review, 2011, 30 (2), 215-227
Handle: RePEc:iza:izadps:dp4069

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

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References

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Citations

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Cited by:
  1. Jürg Schweri & Stefan C. Wolter & Joop Hartog, 2008. "Do Students Expect Compensation for Wage Risk?," Economics of Education Working Paper Series 0011, University of Zurich, Institute for Strategy and Business Economics (ISU).
  2. Tacsir, Ezequiel, 2010. "Making your own future: Expectations and occupation choice," MERIT Working Papers 058, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  3. Mazza, Jacopo & van Ophem, Hans & Hartog, Joop, 2013. "Unobserved heterogeneity and risk in wage variance: Does more schooling reduce earnings risk?," Labour Economics, Elsevier, vol. 24(C), pages 323-338.
  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. Kässi, Otto, 2012. "Uncertainty and Heterogeneity in Returns to Education: Evidence from Finland," MPRA Paper 43503, University Library of Munich, Germany.
  6. Simone N. Tuor & Uschi Backes-Gellner, 2010. "Risk-return trade-offs to different educational paths: vocational, academic and mixed," International Journal of Manpower, Emerald Group Publishing, vol. 31(5), pages 495-519, September.

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