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The Risk and Return of Human Capital Investments

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  • Koerselman, Kristian

    () (University of Jyväskylä)

  • Uusitalo, Roope

    () (University of Jyväskylä)

Abstract

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.

Suggested Citation

  • Koerselman, Kristian & Uusitalo, Roope, 2013. "The Risk and Return of Human Capital Investments," IZA Discussion Papers 7752, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp7752
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    References listed on IDEAS

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    Cited by:

    1. Shirantha Heenkenda & D.P.S Chandrakumara, 2015. "A Canonical Analysis on the Relationship between Financial Risk Tolerance and Household Education Investment in Sri Lanka," International Journal of Innovation and Economic Development, Inovatus Services Ltd., vol. 1(4), pages 7-23, October.
    2. Oksana Domkina, 2015. "Risks of investment in personnel development: evidence from Ukrainian IT companies," International Economics, University of Lodz, Faculty of Economics and Sociology, pages 64-80.
    3. Ulla Hämäläinen & Kristian Koerselman & Roope Uusitalo, 2017. "Graduation Incentives Through Conditional Student Loan Forgiveness," Working Papers id:12273, eSocialSciences.
    4. Laura Ansala & Ulla Hämäläinen & Matti Sarvimäki, 2016. "Slipping through the Cracks of a Welfare State: Children of Immigrants in Finland," CReAM Discussion Paper Series 1606, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
    5. Hämäläinen, Ulla & Koerselman, Kristian & Uusitalo, Roope, 2017. "Graduation Incentives Through Conditional Student Loan Forgiveness," IZA Discussion Papers 11142, Institute for the Study of Labor (IZA).
    6. Sofia Oliveira, 2015. "Returns to Vocational Education in Portugal," Investigaciones de Economía de la Educación volume 10,in: Marta Rahona López & Jennifer Graves (ed.), Investigaciones de Economía de la Educación 10, edition 1, volume 10, chapter 37, pages 725-750 Asociación de Economía de la Educación.

    More about this item

    Keywords

    education; risk; lifetime income; human capital;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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