Compensating Wage Differentials for Schooling Risk in Denmark

40 Pages Posted: 13 Jan 2004

See all articles by Luís Díaz-Serrano

Luís Díaz-Serrano

National University of Ireland, Maynooth; IZA Institute of Labor Economics

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

Helena Skyt Nielsen

Aarhus University - Department of Economics and Business; IZA Institute of Labor Economics

Date Written: December 2003

Abstract

In this paper we test for risk compensation in wages using Danish panel data. With the conviction that the type of education is as important as the education length, we use a very detailed description of the type of education reached by the Danish population to calculate different measures of earnings risk by education. Our long panel data set also allows us to decompose shocks in earnings in a permanent and a transitory component. We test the role of the risks associated to both components in wage compensation. We also experiment with new measures of earnings risk based on transitory intertemporal fluctuations in earnings. Thus, we get closer to risk measures catching the intrinsic long-run feature of schooling-risks and the required compensation. In concordance to what theory predicts, we find that the labor market compensates for such foreseeable risks. Hence, we state a return-risk trade-off for the human capital investments in Denmark.

Keywords: risk-premium, skewness affection, schooling risk, earnings shocks

JEL Classification: D8, J3

Suggested Citation

Díaz-Serrano, Luís and Hartog, Joop and Nielsen, Helena Skyt, Compensating Wage Differentials for Schooling Risk in Denmark (December 2003). IZA Discussion Paper No. 963. Available at SSRN: https://ssrn.com/abstract=487265

Luís Díaz-Serrano

National University of Ireland, Maynooth ( email )

2nd Floor
Iontas Building
Maynooth, County Kildare
Ireland

IZA Institute of Labor Economics

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

Joop Hartog (Contact Author)

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

Helena Skyt Nielsen

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Alle 4
Aarhus, 8210
Denmark

HOME PAGE: http://person.au.dk/hnielsen@econ.au.dk

IZA Institute of Labor Economics

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

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