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Does COllege Attendance Increase Wage Volatility

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Author Info
Stacey Chen
Abstract

This paper examines whether wage volatility increases with education, important for understanding why some students are hesitant to attend college. The paper's key contribution is to provide an improved measure of wage volatility: it adjusts the standard measure --- the variance of log wages conditional on individual characteristics --- to take account of a self-selection problem that arises because risk-averse agents tend to choose careers with lower volatility. The results indicate that this selection problem cannot be ignored. Distinguishing both permanent and transitory components of wage volatility using a two-stage fixed-effects model that accounts for selection, I find that, on average, the permanent component of wage volatility increases significantly after attending a four-year college. This suggests that wage volatility may help explain why a significant fraction of qualified students do not attend college.

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Paper provided by University at Albany, SUNY, Department of Economics in its series Discussion Papers with number 03-01.

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Date of creation: 2003
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Handle: RePEc:nya:albaec:03-01

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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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Postal: Department of Economics, BA 110 University at Albany State University of New York Albany, NY 12222 U.S.A.
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Related research
Keywords: self-selection volatility differential schooling choice

Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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