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Earnings Risk And Demand For Higher Education: A Cross-Section Test For Spain

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  • Joop Hartog

    () (University of Amsterdam)

  • Luis Diaz-Serrano

    (National University of Ireland Maynooth, CREB luis.diaz@may.ie)

Abstract

We develop a simple human capital model for optimum schooling length when earnings are stochastic, and highlight the pivotal role of risk attitudes and the schooling gradient of earnings risk. We use Spanish data to document the gradient and to estimate individual response to earnings risk in deciding on attending university education, by measuring risk as the residual variance in regional earnings functions. We find that the basic response is negative but that in households with lower risk aversion, the response will be dampened substantially and may even be reversed to positive.

Suggested Citation

  • Joop Hartog & Luis Diaz-Serrano, 2004. "Earnings Risk And Demand For Higher Education: A Cross-Section Test For Spain," Economics, Finance and Accounting Department Working Paper Series n1370804, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  • Handle: RePEc:may:mayecw:n1370804
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    References listed on IDEAS

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    6. Hogan, Vincent & Ian Walker, 2002. "Education Choice under Uncertainty," Royal Economic Society Annual Conference 2002 103, Royal Economic Society.
    7. Hartog, Joop & Ferrer-i-Carbonell, Ada & Jonker, Nicole, 2002. "Linking Measured Risk Aversion to Individual Characteristics," Kyklos, Wiley Blackwell, vol. 55(1), pages 3-26.
    8. 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 521-548, October.
    9. Stacey Chen, 2001. "Is Investing in College Education Risky?," Discussion Papers 01-09, University at Albany, SUNY, Department of Economics.
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    Citations

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    Cited by:

    1. Jacopo Mazza & Hans van Ophem & Joop Hartog, 2011. "Unobserved Heterogeneity and Risk in Wage Variance: Does Schooling provide Earnings Insurance?," Tinbergen Institute Discussion Papers 11-045/3, Tinbergen Institute.
    2. Thomas Dohmen & Armin Falk, 2010. "You Get What You Pay For: Incentives and Selection in the Education System," Economic Journal, Royal Economic Society, vol. 120(546), pages 256-271, August.
    3. repec:eee:eecrev:v:97:y:2017:i:c:p:1-25 is not listed on IDEAS
    4. Sergey Roshchin & Victor Rudakov, 2015. "Do Starting Salaries for Graduates Measure the Quality of Education? A Review of Studies by Russian and Foreign Authors," Educational Studies, Higher School of Economics, issue 1, pages 137-181.
    5. Fossen, Frank M. & Glocker, Daniela, 2017. "Stated and revealed heterogeneous risk preferences in educational choice," European Economic Review, Elsevier, vol. 97(C), pages 1-25.
    6. Carla Sá & Raymond Florax & Piet Rietveld, 2006. "Does Accessibility to Higher Education Matter? Choice Behaviour of High School Graduates in the Netherlands," Spatial Economic Analysis, Taylor & Francis Journals, vol. 1(2), pages 155-174.
    7. Frank M. Fossen & Daniela Glocker, 2009. "Expected Future Earnings, Taxation, and University Enrollment: A Microeconometric Model with Uncertainty," Discussion Papers of DIW Berlin 934, DIW Berlin, German Institute for Economic Research.
    8. Joop Hartog & Luis Diaz-Serrano, 2015. "Why Do We Ignore the Risk in Schooling Decisions?," De Economist, Springer, vol. 163(2), pages 125-153, June.
    9. Jacobs, Bas, 2007. "Real options and human capital investment," Labour Economics, Elsevier, vol. 14(6), pages 913-925, December.
    10. Frank Fossen & Daniela Glocker, 2011. "Expected future earnings, taxation, and university enrollment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 18(6), pages 688-723, December.
    11. Čepar Žiga & Bojnec Štefan, 2010. "Higher Education Demand Factors and the Demand for Tourism Education in Slovenia," Organizacija, De Gruyter Open, vol. 43(6), pages 257-266, November.
    12. Martin Ryan & Siobhan McCarthy & Carol Newman, 2007. "Household Characteristics of Higher Education Participants," Working Papers 200702, Geary Institute, University College Dublin.
    13. Luis Diaz-Serrano & Joop Hartog & Helena Skyt Nielsen, 2008. "Compensating Wage Differentials for Schooling Risk in Denmark," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(4), pages 711-731, December.
    14. Santiago Budría, 2011. "Are Educational Mismatches Responsible for the ‘Inequality Increasing Effect’ of Education?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 102(3), pages 409-437, July.
    15. Bruce Chapman & Kiatanantha Lounkaewa, 2010. "Repayment Burdens with US College Loans," CEPR Discussion Papers 647, Centre for Economic Policy Research, Research School of Economics, Australian National University.
    16. Montserrat Hernández-LÓPEZ & José Juan Cáceres-HERNÁNDEZ, 2016. "Forecasting The Composition Of Demand For Higher Education Degrees By Genetic Algorithms," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 50(3), pages 153-172.
    17. Santiago Budria, 2010. "Schooling and the distribution of wages in the European private and public sectors," Applied Economics, Taylor & Francis Journals, vol. 42(8), pages 1045-1054.
    18. Beladi, Hamid & Sinha, Chaitali & Kar, Saibal, 2016. "To educate or not to educate: Impact of public policies in developing countries," Economic Modelling, Elsevier, vol. 56(C), pages 94-101.
    19. Diaz-Serrano, Luis & Hartog, Joop, 2004. "Is There a Risk-Return Trade-Off across Occupations? Evidence from Spain," IZA Discussion Papers 1355, Institute for the Study of Labor (IZA).
    20. Migali, Giuseppe, 2012. "Funding higher education and wage uncertainty: Income contingent loan versus mortgage loan," Economics of Education Review, Elsevier, vol. 31(6), pages 871-889.
    21. Campos-Vazquez, Raymundo M. & Cuilty, Emilio, 2014. "The role of emotions on risk aversion: A Prospect Theory experiment," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 50(C), pages 1-9.
    22. Luis Diaz-Serrano & J. Hartog, 2004. "Is there a Risk-Return Trade-off across Occupations? Evidence from Spain," Economics, Finance and Accounting Department Working Paper Series n1441004, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    23. Shelest Olena, 2015. "Risk of Investments in Human Capital and Expected Worker Mobility," International Journal of Management and Economics, De Gruyter Open, vol. 47(1), pages 82-106, September.

    More about this item

    Keywords

    earnings risk; schooling decisions;

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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