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

Listed author(s):
  • Mazza, Jacopo
  • van Ophem, Hans
  • Hartog, Joop

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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0927537113001061
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Article provided by Elsevier in its journal Labour Economics.

Volume (Year): 24 (2013)
Issue (Month): C ()
Pages: 323-338

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Handle: RePEc:eee:labeco:v:24:y:2013:i:c:p:323-338
DOI: 10.1016/j.labeco.2013.09.007
Contact details of provider: Web page: http://www.elsevier.com/locate/labeco

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  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.
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