Estimating industry-specific human capital from a dynamic portfolio choice model

49 Pages Posted: 17 Sep 2020 Last revised: 18 Nov 2021

See all articles by Joachim Inkmann

Joachim Inkmann

University of Melbourne - Department of Finance

Date Written: August 31, 2020


Using CES earnings data, I estimate the private, risk-adjusted value of industry-specific human capital for employees in 72 industries. For each industry, I obtain the certainty equivalent income, which renders an individual indifferent between receiving and consuming this income and implementing the optimal consumption and portfolio choice decisions that solve the average Euler equations for employees in that industry. Depending on the industry of employment, every dollar initially earned is worth between 86 and 99 cents, when adjusted for the risks in industry-specific per-capita income growth, and the potential to hedge these risks with investments in the aggregate stock market. Inter-industry differences in certainty equivalent income per dollar of initial earnings can be explained by cross-sectional variation in the time series moments of the joint distribution of income growth and stock return. Cokurtosis, the tendency to generate left skewness in per-capita income growth in recessions, is as important as correlation.

Keywords: Labor and finance; human capital; aggregation; dynamic portfolio choice

JEL Classification: E24, G11, J31

Suggested Citation

Inkmann, Joachim, Estimating industry-specific human capital from a dynamic portfolio choice model (August 31, 2020). Available at SSRN: or

Joachim Inkmann (Contact Author)

University of Melbourne - Department of Finance ( email )

Level 12, 198 Berkeley Street
University of Melbourne, Victoria 3010
0061 3 9035 8177 (Phone)


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