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Compensating Wage Differentials for Schooling Risk in Denmark

Author

Listed:
  • Diaz-Serrano, L.

    (National University of Ireland, Maynooth and CREB, Barcelona)

  • Hartog, J.

    (SCHOLAR, University of Amsterdam)

  • Skyt Nielsen, H.

    (University of Aarhus)

Abstract

In this paper we test for risk compensation in wages using Danish panel data. With the conviction that the type of education is as important as the education length, we use a very detailed description of the type of education reached by the Danish population to calculate different measures of risk. Our long panel data set also allows us to decompose shocks in earnings in a permanent and a transitory component. We test the role of the risks associated to both components in wage compensation. We also experiment with new measures of risk based on intertemporal fluctuations on transitory shocks in earnings. Thus, we get closer to risk measures catching the intrinsic long-run feature of schooling-risks and the required compensation. In concordance to what theory predicts, we find that the labor market compensates for such foreseeable risks. Hence, we state a return-risk trade-off for the human capital investments in Denmark.

Suggested Citation

  • Diaz-Serrano, L. & Hartog, J. & Skyt Nielsen, H., 2003. "Compensating Wage Differentials for Schooling Risk in Denmark," Economics Department Working Paper Series n1271003, Department of Economics, National University of Ireland - Maynooth.
    • Handle: RePEc:may:mayecw:n1271003
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Risk-premium; skewness affection; Schooling risk; earnings shocks;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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