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Compensating Wage Differentials for Schooling Risk in Denmark

  • Diaz-Serrano, L.

    ()

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

  • Hartog, J.

    (SCHOLAR, University of Amsterdam)

  • Skyt Nielsen, H.

    (University of Aarhus)

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.

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Paper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n1271003.

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Length: 37 pages
Date of creation: Oct 2003
Date of revision:
Handle: RePEc:may:mayecw:n1271003
Contact details of provider: Postal: Maynooth, Co. Kildare
Phone: 353-1-7083728
Fax: 353-1-7083934
Web page: http://www.maynoothuniversity.ie/economics-finance-and-accounting

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  1. Joop Hartog & Luis Díaz-Serrano, 2007. "Earnings risk and demand for higher education: A cross-section test for Spain," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 1-28, May.
  2. Martin Browning & Mette Ejrnaes, 2006. "Modelling income processes with lots of heterogeneity," Economics Series Working Papers 285, University of Oxford, Department of Economics.
  3. Williams, Joseph T, 1979. "Uncertainty and the Accumulation of Human Capital over the Life Cycle," The Journal of Business, University of Chicago Press, vol. 52(4), pages 521-48, October.
  4. Jonathan Eaton & Harvey Rosen, 1979. "Taxation, Human Capital and Uncertainty," Working Papers 497, Princeton University, Department of Economics, Industrial Relations Section..
  5. Belzil, Christian & Hansen, Jörgen, 2002. "Earnings Dispersion, Risk Aversion and Education," IZA Discussion Papers 513, Institute for the Study of Labor (IZA).
  6. Harmon, Colm & Hogan, Vincent & Walker, Ian, 2001. "Dispersion in the Economic Return to Schooling," CEPR Discussion Papers 3037, C.E.P.R. Discussion Papers.
  7. Kodde, David A, 1986. "Uncertainty and the Demand for Education," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 460-67, August.
  8. Christiansen, Charlotte & Nielsen, Helena Skyt, 2003. "The Educational Asset Market: A Finance Perspective on Human Capital Investment," Finance Working Papers 02-9, University of Aarhus, Aarhus School of Business, Department of Business Studies.
  9. Levhari, David & Weiss, Yoram, 1974. "The Effect of Risk on the Investment in Human Capital," American Economic Review, American Economic Association, vol. 64(6), pages 950-63, December.
  10. Stacey Chen, 2001. "Is Investing in College Education Risky?," Discussion Papers 01-09, University at Albany, SUNY, Department of Economics.
  11. Weiss, Yoram, 1972. "The Risk Element in Occupational and Educational Choices," Journal of Political Economy, University of Chicago Press, vol. 80(6), pages 1203-13, Nov.-Dec..
  12. Pereira, Pedro T. & Martins, Pedro S., 2001. "Is there a Return-Risk Link in Education?," IZA Discussion Papers 321, Institute for the Study of Labor (IZA).
  13. Olson, Lawrence & White, Halbert & Shefrin, H M, 1979. "Optimal Investment in Schooling when Incomes are Risky," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 522-39, June.
  14. Joop Hartog & Erik Plug & Luis Diaz Serrano & Jose Vieira, 2003. "Risk compensation in wages – a replication," Empirical Economics, Springer, vol. 28(3), pages 639-647, July.
  15. Hartog, Joop & Vijverberg, Wim P., 2002. "Do Wages Really Compensate for Risk Aversion and Skewness Affection?," IZA Discussion Papers 426, Institute for the Study of Labor (IZA).
  16. Hogan, Vincent & Ian Walker, 2002. "Education Choice under Uncertainty," Royal Economic Society Annual Conference 2002 103, Royal Economic Society.
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