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Uncertainty and Heterogeneity in Returns to Education: Evidence from Finland

  • Kässi, Otto

This paper studies the causal effect of education on income uncertainty using a broad measure of income which encompasses unemployment risk. To accomplish this, the variance of residuals from a Mincer-type income regression is decomposed into unobserved heterogeneity (known to the individual when making their educational choices) and uncertainty (unknown to the individual). The estimation is done using Finnish registry data. The marginal effect of having a secondary or a lower tertiary level education decreases income uncertainty. University level education is found to have a small positive marginal effect on income uncertainty. The effect of education on income uncertainty is roughly similar for men in comparison to women, but income uncertainty is larger for men than for women regardless of education. Contrary to some results from the U.S., the role of unobserved heterogeneity is found to be very small.

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File URL: http://mpra.ub.uni-muenchen.de/43503/1/MPRA_paper_43503.pdf
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File URL: http://mpra.ub.uni-muenchen.de/43962/3/MPRA_paper_43962.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43503.

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Date of creation: Dec 2012
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Handle: RePEc:pra:mprapa:43503
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  10. Adriana Lleras-Muney, 2005. "The Relationship Between Education and Adult Mortality in the United States," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 189-221.
  11. Diaz-Serrano, Luis & Hartog, Joop & Nielsen, Helena Skyt, 2003. "Compensating Wage Differentials for Schooling Risk in Denmark," IZA Discussion Papers 963, Institute for the Study of Labor (IZA).
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  19. Kramarz, Francis & Machin, Stephen & Ouazad, Amine, 2008. "What Makes a Test Score? The Respective Contributions of Pupils, Schools, and Peers in Achievement in English Primary Education," IZA Discussion Papers 3866, Institute for the Study of Labor (IZA).
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  22. 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.
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