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Earnings Dispersion, Risk Aversion and Education

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  • Christian Belzil

    () (GATE - Groupe d'analyse et de théorie économique - UL2 - Université Lumière - Lyon 2 - Ecole Normale Supérieure Lettres et Sciences Humaines - CNRS - Centre National de la Recherche Scientifique)

  • Jörgen Hansen

    (Department of Economics - Concordia University [Montreal, Canada])

Abstract

We estimate a dynamic programming model of schooling decisions in which the degree of risk aversion can be inferred from schooling decisions. In our model, individuals are heterogeneous with respect to school and market abilities but homogeneous with respect to the degree of risk aversion. We allow endogenous schooling attainments to affect the level of risk experienced in labor market earnings through wage dispersion and employment rate dispersion. We find a low degree of relative risk aversion (0.93) and the estimates indicate that both wage and employment rate dispersions decrease significantly with schooling attainments. We find that a counterfactual increase in risk aversion will increase schooling attainments. Finally, the low degree of risk aversion implies that an increase in earnings dispersion would have little effect on schooling attainments.

Suggested Citation

  • Christian Belzil & Jörgen Hansen, 2004. "Earnings Dispersion, Risk Aversion and Education," Post-Print halshs-00180125, HAL.
  • Handle: RePEc:hal:journl:halshs-00180125
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00180125
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    More about this item

    Keywords

    dynamic programming; earnings dispersion; human capital; returns to education; risk aversion; aversion au risque; capital humain; dispersion des revenus; programmation dynamique; rendement de l'éducation;

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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