Earnings Dispersion, Risk Aversion and Education

26 Pages Posted: 4 Dec 2002

See all articles by Christian Belzil

Christian Belzil

Ecole Polytechnique, Paris - Department of Economic Sciences; National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE); Institute for the Study of Labor (IZA); Center for Interuniversity Research and Analysis on Organization (CIRANO)

Jorgen Hansen

Concordia University, Quebec - Department of Economics; IZA Institute of Labor Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO)

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Date Written: October 2002

Abstract

We estimate a dynamic programming model of schooling decisions in which the degree of risk aversion can be inferred from schooling decisions. In our model, individuals are heterogeneous with respect to school and market abilities but homogeneous with respect to the degree of risk aversion. We allow endogenous schooling attainments to affect the level of risk experienced in labour market earnings through wage dispersion and employment rate dispersion. We find a low degree of relative risk aversion (0.9282) and find that a counterfactual increase in risk aversion will increase schooling attainments. The estimates indicate that both wage and employment rate dispersions decrease significantly with schooling attainments.

Keywords: Dynamic programming, returns to education, risk aversion, human capital, earnings dispersion

JEL Classification: J20, J30

Suggested Citation

Belzil, Christian and Hansen, Jorgen, Earnings Dispersion, Risk Aversion and Education (October 2002). Available at SSRN: https://ssrn.com/abstract=353781

Christian Belzil (Contact Author)

Ecole Polytechnique, Paris - Department of Economic Sciences ( email )

Ecole Polytechnique
Department of Economics
Paris, 75005
France

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE)

92245 Malakoff Cedex
France

Institute for the Study of Labor (IZA)

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

Center for Interuniversity Research and Analysis on Organization (CIRANO)

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada

Jorgen Hansen

Concordia University, Quebec - Department of Economics ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada
514-848-3924 (Phone)
514-848-4536 (Fax)

IZA Institute of Labor Economics

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

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

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