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Compensating Wage Differentials for Schooling Risk in Denmark

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Author Info

  • Diaz-Serrano, L.

    ()
    (National University of Ireland, Maynooth and CREB, Barcelona)

  • Hartog, J.

    (SCHOLAR, University of Amsterdam)

  • Skyt Nielsen, H.

    (University of Aarhus)

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    Abstract

    In this paper we test for risk compensation in wages using Danish panel data. With the conviction that the type of education is as important as the education length, we use a very detailed description of the type of education reached by the Danish population to calculate different measures of risk. Our long panel data set also allows us to decompose shocks in earnings in a permanent and a transitory component. We test the role of the risks associated to both components in wage compensation. We also experiment with new measures of risk based on intertemporal fluctuations on transitory shocks in earnings. Thus, we get closer to risk measures catching the intrinsic long-run feature of schooling-risks and the required compensation. In concordance to what theory predicts, we find that the labor market compensates for such foreseeable risks. Hence, we state a return-risk trade-off for the human capital investments in Denmark.

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    Bibliographic Info

    Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1271003.

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    Length: 37 pages
    Date of creation: Oct 2003
    Date of revision:
    Handle: RePEc:may:mayecw:n1271003

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    Postal: Maynooth, Co. Kildare
    Phone: 353-1-7083728
    Fax: 353-1-7083934
    Web page: http://economics.nuim.ie
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    Related research

    Keywords: Risk-premium; skewness affection; Schooling risk; earnings shocks;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Stacey Chen, 2001. "Is Investing in College Education Risky?," Discussion Papers 01-09, University at Albany, SUNY, Department of Economics.
    2. Christian Belzil & Jörgen Hansen, 2004. "Earnings Dispersion, Risk Aversion and Education," Post-Print halshs-00180125, HAL.
    3. Hogan, Vincent & Ian Walker, 2002. "Education Choice under Uncertainty," Royal Economic Society Annual Conference 2002 103, Royal Economic Society.
    4. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-63, December.
    5. Harmon, Colm & Hogan, Vincent & Walker, Ian, 2001. "Dispersion in the Economic Return to Schooling," CEPR Discussion Papers 3037, C.E.P.R. Discussion Papers.
    6. Joop Hartog & Luis Díaz-Serrano, 2007. "Earnings risk and demand for higher education: A cross-section test for Spain," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 1-28, May.
    7. Javier Alvarez & Martin Browning & Mette Ejrnæs, 2001. "Modelling Income Processes with lots of heterogeneity," CAM Working Papers 2002-01, University of Copenhagen. Department of Economics. Centre for Applied Microeconometrics.
    8. Christiansen, Charlotte & Nielsen, Helena Skyt, 2003. "The Educational Asset Market: A Finance Perspective on Human Capital Investment," Finance Working Papers 02-9, University of Aarhus, Aarhus School of Business, Department of Business Studies.
    9. 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.
    10. Pereira, Pedro T. & Martins, Pedro S., 2001. "Is there a Return-Risk Link in Education?," IZA Discussion Papers 321, Institute for the Study of Labor (IZA).
    11. Olson, Lawrence & White, Halbert & Shefrin, H M, 1979. "Optimal Investment in Schooling when Incomes are Risky," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 522-39, June.
    12. Weiss, Yoram, 1972. "The Risk Element in Occupational and Educational Choices," Journal of Political Economy, University of Chicago Press, vol. 80(6), pages 1203-13, Nov.-Dec..
    13. Williams, Joseph T, 1979. "Uncertainty and the Accumulation of Human Capital over the Life Cycle," The Journal of Business, University of Chicago Press, vol. 52(4), pages 521-48, October.
    14. Hartog, Joop & Vijverberg, Wim P., 2002. "Do Wages Really Compensate for Risk Aversion and Skewness Affection?," IZA Discussion Papers 426, Institute for the Study of Labor (IZA).
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    Citations

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    Cited by:
    1. Diaz-Serrano, Luis, 2004. "Labour Income Uncertainty, Risk Aversion and Home Ownership," IZA Discussion Papers 1008, Institute for the Study of Labor (IZA).
    2. Diaz-Serrano, Luis & Hartog, Joop, 2004. "Is There a Risk-Return Trade-Off across Occupations? Evidence from Spain," IZA Discussion Papers 1355, Institute for the Study of Labor (IZA).
    3. 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.
    4. Diaz-Serrano, Luis, 2004. "On the Negative Relationship between Labor Income Uncertainty and Homeownership: Risk Aversion vs. Credit Constraints," IZA Discussion Papers 1208, Institute for the Study of Labor (IZA).
    5. Peter Schneider & Dieter Sadowski, 2008. "The impact of New Public Management (NPM) instruments on PhD education," IAAEG Discussion Papers until 2011 200803, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    6. Luis Díaz-Serrano & Joop Hartog, 2006. "Is there a risk-return trade-off in educational choices? Evidence from Spain," Investigaciones Economicas, Fundación SEPI, vol. 30(2), pages 353-380, May.
    7. Hartog, Joop & Vijverberg, Wim, 2007. "Schools, skills and risk," Economics of Education Review, Elsevier, vol. 26(6), pages 758-770, December.
    8. Luis Diaz-Serrano & J. Hartog, 2004. "Is there a Risk-Return Trade-off across Occupations? Evidence from Spain," Economics, Finance and Accounting Department Working Paper Series n1441004, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.

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