How Risky is Investment in Human Capital?

33 Pages Posted: 23 Jul 2004

See all articles by Joop Hartog

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

Hans van Ophem

University of Amsterdam - Faculty of Economics and Business (FEB); Tinbergen Institute

Simona Maria Bajdechi

University of Amsterdam - Faculty of Economics and Business (FEB); Tinbergen Institute

Date Written: August 2004

Abstract

The risk of investment in schooling has largely been ignored. We assess the variance in the rate of return by surveying the international empirical literature from this fresh perspective and by simulating risky earnings profiles in alternative options, choosing parameters on the basis of the very limited evidence. The distribution of rates of return appears positively skewed. Our best guess of ex ante risk in university education is a coefficient of variation of about 0.3, comparable to that in a randomly selected financial portfolio with some 30 stocks. Allowing for stochastic components in earnings also markedly affects expected returns.

Keywords: Education, return, earnings dispersion, risk

JEL Classification: I2, J3

Suggested Citation

Hartog, Joop and van Ophem, Hans and Bajdechi, Simona Maria, How Risky is Investment in Human Capital? (August 2004). CESifo Working Paper Series No. 1261; Tinbergen Institute Discussion Paper No. 04-080/3. Available at SSRN: https://ssrn.com/abstract=567204

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

Hans Van Ophem

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

Simona Maria Bajdechi

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

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