Do Students Expect Compensation for Wage Risk?

27 Pages Posted: 30 Mar 2009

See all articles by Juerg Schweri

Juerg Schweri

Swiss Federal Institute of Vocational Education and Research

Joop Hartog

University of Amsterdam - Faculty of Economics and Business (FEB); Tinbergen Institute; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Stefan C. Wolter

Swiss Coordination Centre for Research in Education (SKBF); University of Bern - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Abstract

We use a unique data set about the wage distribution that Swiss students expect for themselves ex ante, deriving parametric and non-parametric measures to capture expected wage risk. These wage risk measures are unfettered by heterogeneity which handicapped the use of actual market wage dispersion as risk measure in earlier studies. Students in our sample anticipate that the market provides compensation for risk, as has been established with Risk Augmented Mincer earnings equations estimated on market data: higher wage risk for educational groups is associated with higher mean wages. With observations on risk as expected by students we find compensation at similar elasticities as observed in market data. The results are robust to different specifications and estimation models.

Keywords: wage, expectations, wage risk, risk compensation, skewness

JEL Classification: D8, I2, J2, J3

Suggested Citation

Schweri, Jürg and Hartog, Joop and Wolter, Stefan C., Do Students Expect Compensation for Wage Risk?. IZA Discussion Paper No. 4069. Available at SSRN: https://ssrn.com/abstract=1369815

Jürg Schweri (Contact Author)

Swiss Federal Institute of Vocational Education and Research ( email )

Kirchlindachstrasse 79
Zollikofen, 3052
Switzerland

Joop Hartog

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Stefan C. Wolter

Swiss Coordination Centre for Research in Education (SKBF) ( email )

CH - 5000 Aarau
Switzerland
+41 62 835 23 90 (Phone)
+41 62 835 23 99 (Fax)

HOME PAGE: http://www.skbf-csre.ch

University of Bern - Department of Economics ( email )

Gesellschaftstrasse 49
Bern, CH-3012
Switzerland
+41 31 631 40 95 (Phone)
+41 31 631 39 92 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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