Compensation for Earnings Risk Under Worker Heterogeneity

27 Pages Posted: 25 Apr 2006

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

Peter H. G. Berkhout

University of Amsterdam - SEO Economic Research

H. Dinand Webbink

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

Date Written: April 2006

Abstract

We use two large Dutch datasets to estimate the Risk Augmented Mincer equation and test for risk compensation in expected earnings. We replicate earlier findings of a positive premium for risk and a negative premium for skew and add confirmation of the key results if we control for individual ability. We find that immigrants have graduated in more risky educations but obtain identical risk compensation. Among recent graduates, women receive higher risk compensation than men, consistent with their higher risk aversion, while for a labour force cross-section, lower average compensation for women is consistent with their presence in less risky educations. Lower average compensation for vocational graduates than for university graduates is consistent with presumed higher risk aversion and lower observed risk.

Keywords: wages, risk, earnings function

JEL Classification: J31

Suggested Citation

Hartog, Joop and Berkhout, Peter H. G. and Webbink, H. Dinand, Compensation for Earnings Risk Under Worker Heterogeneity (April 2006). IZA Discussion Paper No. 2074. Available at SSRN: https://ssrn.com/abstract=898569

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

Peter H. G. Berkhout

University of Amsterdam - SEO Economic Research ( email )

Roetersstraat 29
Amsterdam, 1018 WB
Netherlands

H. Dinand Webbink

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

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

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