Earning Risk and Demand for Higher Education: A Cross-Section Test for Spain

Journal of Applied Economics, Vol. 10, No. 1, pp. 1-28, May 2007

Posted: 6 Jun 2007

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

Luis Diaz-Serrano

Universitat Rovira i Virgili; IZA Institute of Labor Economics

Abstract

We develop a simple human capital model for optimum schooling length when earnings are stochastic, and highlight the pivotal role of risk attitudes and the schooling gradient of earnings risk. We use Spanish data to document the gradient and to estimate individual response to earnings risk in deciding on attending university education, by measuring risk as the residual variance in regional earnings functions. We find that the basic response is negative but that in households with lower risk aversion, the response will be dampened substantially and may even be reversed to positive.

Keywords: earnings risk, schooling decisions

JEL Classification: I21

Suggested Citation

Hartog, Joop and Diaz-Serrano, Luis, Earning Risk and Demand for Higher Education: A Cross-Section Test for Spain. Journal of Applied Economics, Vol. 10, No. 1, pp. 1-28, May 2007. Available at SSRN: https://ssrn.com/abstract=991366

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

Luis Diaz-Serrano

Universitat Rovira i Virgili ( email )

Campus Sescelades, Carretera de Valls s/n
43006 Tarragona, Tarragona 43007
Spain

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

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