The Risk and Return of Human Capital Investments
Investing in human capital increases lifetime income, but these investments may involve substantial risk. In this paper we use a Finnish panel spanning 22 years to predict the mean, the variance and the skew of the present value of lifetime income, and to calculate certainty equivalent lifetime income at different levels of education. We find that university education is associated with about a half a million euro increase in discounted lifetime disposable income compared to vocational high school. Accounting for risk does little to change this picture. By contrast, vocational high school is associated with only moderately higher lifetime income compared to compulsory education, and the entire difference is due to differential nonemployment.
|Date of creation:||Nov 2013|
|Publication status:||published in: Labour Economics, 2014, 30, 154-163|
|Contact details of provider:|| Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany|
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pekkarinen, Tuomas & Uusitalo, Roope, 9/03.
"School Tracking and Development of Cognitive Skills,"
IZA Discussion Papers
4058, Institute for the Study of Labor (IZA).
- Sari Pekkala Kerr & Tuomas Pekkarinen & Roope Uusitalo, 2013. "School Tracking and Development of Cognitive Skills," Journal of Labor Economics, University of Chicago Press, vol. 31(3), pages 577 - 602.
- Tuomas Pekkarinen & Roope Uusitalo & Sari Kerr, 2009. "School tracking and development of cognitive skills," Working Papers 2, Government Institute for Economic Research Finland (VATT).
- Pekkarinen, Tuomas & Uusitalo, Roope & Kerr, Sari, 2009. "School tracking and development of cognitive skills," Working Paper Series 2009:6, IFAU - Institute for Evaluation of Labour Market and Education Policy.
- Timm Bönke & Giacomo Corneo & Holger Lüthen, 2011.
"Lifetime Earnings Inequality in Germany,"
Discussion Papers of DIW Berlin
1160, DIW Berlin, German Institute for Economic Research.
- Lüthen, Holger & Bönke, Timm & Corneo, Giacomo, 2012. "Lifetime Earnings Inequality in Germany," Annual Conference 2012 (Goettingen): New Approaches and Challenges for the Labor Market of the 21st Century 62074, Verein für Socialpolitik / German Economic Association.
- Bönke, Timm & Corneo, Giacomo & Lüthen, Holger, 1/10. "Lifetime Earnings Inequality in Germany," IZA Discussion Papers 6020, Institute for the Study of Labor (IZA).
- Bönke, Timm & Corneo, Giacomo & Lüthen, Holger, 2012. "Lifetime earnings inequality in Germany," CEPR Discussion Papers 8929, C.E.P.R. Discussion Papers.
- Manudeep Bhuller & Magne Mogstad & Kjell G.Salvanes, 2011.
"Life-cycle bias and the returns to schooling in current and lifetime earnings,"
666, Statistics Norway, Research Department.
- Bhuller, Manudeep & Mogstad, Magne & Salvanes, Kjell G., 1/06. "Life-Cycle Bias and the Returns to Schooling in Current and Lifetime Earnings," IZA Discussion Papers 5788, Institute for the Study of Labor (IZA).
- Garrett, Thomas A. & Sobel, Russell S., 1999. "Gamblers favor skewness, not risk: Further evidence from United States' lottery games," Economics Letters, Elsevier, vol. 63(1), pages 85-90, April.
- Jeffrey Brown & Chichun Fang & Francisco Gomes, 2012. "Risk and Returns to Education," NBER Working Papers 18300, National Bureau of Economic Research, Inc.
- Uusitalo, Roope, 2002. " Changes in the Finnish Wage Structure: Will Demand and Supply Do?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(1), pages 69-85.
- Colm Harmon & Vincent (Vincent Peter) Hogan & Ian Walker, 2002.
"Dispersion in the economic return to schooling,"
Open Access publications
10197/1101, School of Economics, University College Dublin.
- Harmon, Colm & Hogan, Vincent & Walker, Ian, 2001. "Dispersion in the Economic Return to Schooling," CEPR Discussion Papers 3037, C.E.P.R. Discussion Papers.
- Colm Harmon & Vincent (Vincent Peter) Hogan & Ian Walker, 2001. "Dispersion in the economic return to schooling," Working Papers 200116, School of Economics, University College Dublin.
- Telhado Pereira, Pedro & Silva Martins, Pedro, 2002.
"Is there a return-risk link in education?,"
Elsevier, vol. 75(1), pages 31-37, March.
- Hartog, Joop & Vijverberg, Wim P., 2/02. "Do Wages Really Compensate for Risk Aversion and Skewness Affection?," IZA Discussion Papers 426, Institute for the Study of Labor (IZA).
- Joseph Golec & Maurry Tamarkin, 1998. "Bettors Love Skewness, Not Risk, at the Horse Track," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 205-225, February.
- Hogan, Vincent & Walker, Ian, 2007.
"Education choice under uncertainty: Implications for public policy,"
Elsevier, vol. 14(6), pages 894-912, December.
- Vincent (Vincent Peter) Hogan & Ian Walker, 2006. "Education choice under uncertainty : implications for public policy," Working Papers 200615, School of Economics, University College Dublin.
- Christiansen, Charlotte & Joensen, Juanna Schrøter & Nielsen, Helena Skyt, 6/02.
"The Risk-Return Trade-Off in Human Capital Investment,"
IZA Discussion Papers
1962, Institute for the Study of Labor (IZA).
- Christiansen, Charlotte & Joensen, Juanna Schroter & Nielsen, Helena Skyt, 2007. "The risk-return trade-off in human capital investment," Labour Economics, Elsevier, vol. 14(6), pages 971-986, December.
- Charlotte Christiansen & Juanna Schröter Joensen, 2006. "The Risk-Return Trade-Off in Human Capital Investment," Economics Working Papers 2006-02, Department of Economics and Business Economics, Aarhus University.
- Raj Chetty, 2006.
"A New Method of Estimating Risk Aversion,"
American Economic Review,
American Economic Association, vol. 96(5), pages 1821-1834, December.
- Robert B. Barsky & F. Thomas Juster & Miles S. Kimball & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 537-579.
- 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.
- 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.
- Allan G. King, 1974. "Occupational Choice, Risk Aversion, and Wealth," ILR Review, Cornell University, ILR School, vol. 27(4), pages 586-596, July.
- 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.
- Bjorklund, Anders, 1993. "A Comparison between Actual Distributions of Annual and Lifetime Income: Sweden 1951-89," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 39(4), pages 377-86, December.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp7752. 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: (Mark Fallak)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.