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Compensating Wage Differentials for Schooling Risk in Denmark

  • Luis Diaz-Serrano
  • Joop Hartog
  • Helena Skyt Nielsen

In this paper we analyse the association between wage differentials and risk using detailed information on length and type of education as seen in Danish administrative registers. Our contribution to the literature is that we distinguish between transitory (time-series) and permanent (cross-sectional) income shocks, and estimate the compensation for both sorts of risk. We find that wage risk in a given education cell is associated with higher wages, while skewness is associated with lower wages. As a robustness check, we see that ad hoc risk measures based on earnings-mobility indicators confirm these findings. Copyright � The editors of the "Scandinavian Journal of Economics" 2008 .

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Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 110 (2008)
Issue (Month): 4 (December)
Pages: 711-731

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Handle: RePEc:bla:scandj:v:110:y:2008:i:4:p:711-731
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  1. Martin Browning & Mette Ejrn�s & Javier Alvarez, 2010. "Modelling Income Processes with Lots of Heterogeneity," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1353-1381.
  2. 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.
  3. Stacey Chen, 2001. "Is Investing in College Education Risky?," Discussion Papers 01-09, University at Albany, SUNY, Department of Economics.
  4. Joop Hartog & Luis Diaz-Serrano, 2004. "Earnings Risk And Demand For Higher Education: A Cross-Section Test For Spain," Economics, Finance and Accounting Department Working Paper Series n1370804, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  5. 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.
  6. Belzil, Christian & Hansen, Jörgen, 2002. "Earnings Dispersion, Risk Aversion and Education," CEPR Discussion Papers 3600, C.E.P.R. Discussion Papers.
  7. 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.
  8. Colm Harmon & Vincent Hogan & Ian Walker, 2001. "Dispersion in the Economic Return to Schooling," Working Papers 200116, School Of Economics, University College Dublin.
  9. Kodde, David A, 1986. "Uncertainty and the Demand for Education," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 460-67, August.
  10. 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).
  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. Hogan, Vincent & Ian Walker, 2002. "Education Choice under Uncertainty," Royal Economic Society Annual Conference 2002 103, Royal Economic Society.
  13. Eaton, Jonathan & Rosen, Harvey S, 1980. "Taxation, Human Capital, and Uncertainty," American Economic Review, American Economic Association, vol. 70(4), pages 705-15, September.
  14. 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.
  15. Telhado Pereira, Pedro & Silva Martins, Pedro, 2002. "Is there a return-risk link in education?," Economics Letters, Elsevier, vol. 75(1), pages 31-37, March.
  16. 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..
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