Earnings Dispersion, Risk Aversion and Education
Ecole Polytechnique, Paris - Department of Economic Sciences; National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE); Institute for the Study of Labor (IZA); Center for Interuniversity Research and Analysis on Organization (CIRANO)
Concordia University, Quebec - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)
CEPR Discussion Paper No. 3600
We estimate a dynamic programming model of schooling decisions in which the degree of risk aversion can be inferred from schooling decisions. In our model, individuals are heterogeneous with respect to school and market abilities but homogeneous with respect to the degree of risk aversion. We allow endogenous schooling attainments to affect the level of risk experienced in labour market earnings through wage dispersion and employment rate dispersion. We find a low degree of relative risk aversion (0.9282) and find that a counterfactual increase in risk aversion will increase schooling attainments. The estimates indicate that both wage and employment rate dispersions decrease significantly with schooling attainments.
Number of Pages in PDF File: 26
Keywords: Dynamic programming, returns to education, risk aversion, human capital, earnings dispersion
JEL Classification: J20, J30working papers series
Date posted: December 4, 2002
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