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Wage Growth, Human Capital and Risk Preference: Evidence From The British Household Panel Survey

Author

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  • Sarah Brown
  • Karl Talyor

Abstract

The aim of this paper is to explore how interpersonal variation in risk preference affects human capital investment and, hence, wage growth. To date, there has been a distinct lack of empirical research in this area despite the fact that the risk preference of individuals plays a key role in the theoretical models of human capital accumulation. We investigate the link between risk preference, human capital investment and wage growth using data from four waves of the British Household Panel Survey using a measure of the extent of risky financial assets held by individuals as a proxy for risk preference. We exploit panel data enabling us to determine the change in real wages experienced by individuals across three different time horizons, 1995-96, 1995-98 and 1995-2000. Our empirical specification is derived from a theoretical framework, which explicitly allows the risk preferences of individuals to influence human capital accumulation and, consequently, wage growth. Our findings suggest that risk-loving behaviour impacts positively on the returns to human capital investment thereby enhancing wage growth.

Suggested Citation

  • Sarah Brown & Karl Talyor, 2002. "Wage Growth, Human Capital and Risk Preference: Evidence From The British Household Panel Survey," Discussion Papers in Economics 02/14, Division of Economics, School of Business, University of Leicester.
    • Handle: RePEc:lec:leecon:02/14
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    File URL: https://www.le.ac.uk/economics/research/RePEc/lec/leecon/econ02-14.pdf
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    More about this item

    Keywords

    Human capital; Risk Aversion; Wage Growth;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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