IDEAS home Printed from https://ideas.repec.org/a/eee/labeco/v24y2013icp323-338.html
   My bibliography  Save this article

Unobserved heterogeneity and risk in wage variance: Does more schooling reduce earnings risk?

Author

Listed:
  • Mazza, Jacopo
  • van Ophem, Hans
  • Hartog, Joop

Abstract

We apply a recently proposed method to disentangle unobserved heterogeneity from risk in returns to education to data for the USA, the UK and Germany. We find that in residual wage variation, uncertainty by far dominates unobserved heterogeneity. The relation between uncertainty and level of education is not monotonic and differs among countries.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:labeco:v:24:y:2013:i:c:p:323-338
    DOI: 10.1016/j.labeco.2013.09.007
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927537113001061
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jeff Dominitz & Charles F. Manski, 1996. "Eliciting Student Expectations of the Returns to Schooling," Journal of Human Resources, University of Wisconsin Press, vol. 31(1), pages 1-26.
    2. Jacopo Mazza & Hans van Ophem & Joop Hartog, 2011. "Unobserved Heterogeneity and Risk in Wage Variance: Does Schooling provide Earnings Insurance?," Tinbergen Institute Discussion Papers 11-045/3, Tinbergen Institute.
    3. Flavio Cunha & James Heckman & Salvador Navarro, 2005. "Separating uncertainty from heterogeneity in life cycle earnings," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 191-261, April.
    4. Hausman, Jerry A & Taylor, William E, 1981. "Panel Data and Unobservable Individual Effects," Econometrica, Econometric Society, vol. 49(6), pages 1377-1398, November.
    5. Christian Belzil & Marco Leonardi, 2013. "Risk Aversion and Schooling Decisions," Annals of Economics and Statistics, GENES, issue 111-112, pages 35-70.
    6. Stacey H. Chen, 2008. "Estimating the Variance of Wages in the Presence of Selection and Unobserved Heterogeneity," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 275-289, May.
    7. Kahn, Lisa B., 2010. "The long-term labor market consequences of graduating from college in a bad economy," Labour Economics, Elsevier, vol. 17(2), pages 303-316, April.
    8. 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.
    9. Cunha, Flavio & Heckman, James J., 2007. "Identifying and Estimating the Distributions of Ex Post and Ex Ante Returns to Schooling," Labour Economics, Elsevier, vol. 14(6), pages 870-893, December.
    10. Joshua D. Angrist & Alan B. Keueger, 1991. "Does Compulsory School Attendance Affect Schooling and Earnings?," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 979-1014.
    11. Beaudry, Paul & DiNardo, John, 1991. "The Effect of Implicit Contracts on the Movement of Wages over the Business Cycle: Evidence from Micro Data," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 665-688, August.
    12. Giorgio Brunello & Claudio Lucifora & Rudolf Winter-Ebmer, 2004. "The Wage Expectations of European Business and Economics Students," Journal of Human Resources, University of Wisconsin Press, vol. 39(4).
    13. Sean Nicholson & Nicholas S. Souleles, 2001. "Physician Income Expectations and Specialty Choice," NBER Working Papers 8536, National Bureau of Economic Research, Inc.
    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 950-963, December.
    15. Joop Hartog & Hans van Ophem & Simona Maria Bajdechi, 2004. "How Risky is Investment in Human Capital?," CESifo Working Paper Series 1261, CESifo Group Munich.
    16. Julian R. Betts, 1996. "What Do Students Know about Wages? Evidence from a Survey of Undergraduates," Journal of Human Resources, University of Wisconsin Press, vol. 31(1), pages 27-56.
    17. Jeremy Arkes, 2010. "Using Unemployment Rates as Instruments to Estimate Returns to Schooling," Southern Economic Journal, Southern Economic Association, vol. 76(3), pages 711-722, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sergey Roshchin & Victor Rudakov, 2015. "Do Starting Salaries for Graduates Measure the Quality of Education? A Review of Studies by Russian and Foreign Authors," Educational Studies, Higher School of Economics, issue 1, pages 137-181.
    2. Joop Hartog & Luis Diaz-Serrano, 2015. "Why Do We Ignore the Risk in Schooling Decisions?," De Economist, Springer, vol. 163(2), pages 125-153, June.
    3. Koerselman, Kristian & Uusitalo, Roope, 2014. "The risk and return of human capital investments," Labour Economics, Elsevier, vol. 30(C), pages 154-163.

    More about this item

    Keywords

    Wage inequality; Wage uncertainty; Unobserved heterogeneity; Selectivity; Education; Replication;

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

    Lists

    This item is featured on the following reading lists or Wikipedia pages:
    1. Unobserved heterogeneity and risk in wage variance: Does more schooling reduce earnings risk? (LE 2013) in ReplicationWiki

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:labeco:v:24:y:2013:i:c:p:323-338. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/labeco .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.