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Compensation for Earnings Risk under Worker Heterogeneity

Author

Listed:
  • Peter Berkhout

    () (Formerly SEO (Foundation for Economic Research) Amsterdam, now EIB Amsterdam (Economic Institute for the Dutch Construction Industry) Basisweg 10. 1043 AP Amsterdam)

  • Joop Hartog

    () (Department of Economics, Universiteit van Amsterdam, Fellow Tinbergen Institute, AIAS, IZA, and CESifo)

  • Dinand Webbink

    () (CPB Netherlands Bureau for Economic Policy Analysis, Van Stolkweg 14, 2585 JR, The Hague, and associated with SCHOLAR)

Abstract

We use two large data sets to estimate the Risk Augmented Mincer equation and test for risk compensation in expected earnings. We replicate earlier findings of a positive premium for risk and a negative premium for skew and add confirmation of the key results if we control for individual ability. We compare risk compensation and risk distributions between some labor market groups and find that immigrants and natives do not differ in risk attitudes, that public sector workers are undercompensated for their risk, and that risk compensation by gender is not fully consistent with higher risk aversion for women. We express concern that a linear compensation model may be too simple.

Suggested Citation

  • Peter Berkhout & Joop Hartog & Dinand Webbink, 2010. "Compensation for Earnings Risk under Worker Heterogeneity," Southern Economic Journal, Southern Economic Association, vol. 76(3), pages 762-790, January.
  • Handle: RePEc:sej:ancoec:v:76:3:y:2010:p:762-790
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    File URL: http://dx.doi.org/10.4284/sej.2010.76.3.762
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    References listed on IDEAS

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    1. repec:wsi:qjfxxx:v:03:y:2013:i:03n04:n:s2010139213500110 is not listed on IDEAS
    2. Steven J. Davis & Paul Willen, 2013. "Occupation-Level Income Shocks and Asset Returns: Their Covariance and Implications for Portfolio Choice," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 3(03n04), pages 1-53.
    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. Ignacio Palacios-Huerta, 2003. "An Empirical Analysis of the Risk Properties of Human Capital Returns," American Economic Review, American Economic Association, vol. 93(3), pages 948-964, June.
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    Citations

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    Cited by:

    1. Wolfgang Nagl, 2012. "Wage Compensations Due to Risk Aversion and Skewness Affection – German Evidence," ifo Working Paper Series 145, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Dertwinkel-Kalt, Markus & Köster, Mats, 2017. "Local Thinking and Skewness Preferences," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168303, Verein für Socialpolitik / German Economic Association.
    3. Akbar Marvasti, 2010. "Occupational Safety and English Language Proficiency," Journal of Labor Research, Springer, vol. 31(4), pages 332-347, December.
    4. Dertwinkel-Kalt, Markus & Köster, Mats, 2017. "Local thinking and skewness preferences," DICE Discussion Papers 248, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    5. Beladi, Hamid & Sinha, Chaitali & Kar, Saibal, 2016. "To educate or not to educate: Impact of public policies in developing countries," Economic Modelling, Elsevier, vol. 56(C), pages 94-101.
    6. Markus Dertwinkel-Kalt & Mats Köster, 2017. "Local Thinking and Skewness Preferences," Working Paper Series in Economics 97, University of Cologne, Department of Economics.
    7. Livanos, Ilias & Pouliakas, Konstantinos, 2009. "The Gender Wage Gap as a Function of Educational Degree Choices in an Occupationally Segregated EU Country," IZA Discussion Papers 4636, Institute for the Study of Labor (IZA).
    8. Horváth, Gergely, 2014. "Occupational mismatch and social networks," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 442-468.
    9. Kieron J. Barclay & Martin Hällsten & Mikko Myrskylä, 2016. "Birth order and college major in Sweden," MPIDR Working Papers WP-2016-008, Max Planck Institute for Demographic Research, Rostock, Germany.
    10. Shelest Olena, 2015. "Risk of Investments in Human Capital and Expected Worker Mobility," International Journal of Management and Economics, De Gruyter Open, vol. 47(1), pages 82-106, September.

    More about this item

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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