Educational and Wage Risk: Social Insurance vs. Quality of Education

39 Pages Posted: 8 Jan 2009

See all articles by Dirk Schindler

Dirk Schindler

Erasmus School of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Benjamin Weigert

University of Giessen - Department of Economics

Date Written: December 2008

Abstract

In this model of education, where individuals are exposed both to educational risk and to wage risk within the skilled sector, successful graduation depends both on individual effort to study and on public resources. We show that insuring the present risks is a dichotomic task: Wage risk is diversified ex post among the skilled by graduate taxation and skill-specific tuition fees. Educational risk of failure and inequality between skilled and unskilled workers are mitigated ex ante by enhancing the quality of education. The necessary expenditures are optimally financed by regressive tuition fees and the net revenue from the graduate tax.

Keywords: human capital investment, educational risk, wage risk, learning effort, graduate taxation, regressive tuition fees

JEL Classification: H21, I2, J2

Suggested Citation

Schindler, Dirk and Weigert, Benjamin, Educational and Wage Risk: Social Insurance vs. Quality of Education (December 2008). CESifo Working Paper Series No. 2513, Available at SSRN: https://ssrn.com/abstract=1324590 or http://dx.doi.org/10.2139/ssrn.1324590

Dirk Schindler (Contact Author)

Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Benjamin Weigert

University of Giessen - Department of Economics ( email )

Licher Str. 62
Giessen, Hessen D-35394
Germany

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