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Title: Earnings Dispersion, Risk Aversion and Education

Author(s): Christian Belzil and Jörgen Hansen

Publication Date: October 2002

Keyword(s): dynamic programming, earnings dispersion, human capital, returns to education and risk aversion

Programme Area(s): Labour Economics

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.

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Bibliographic Reference

Belzil, C and Hansen, J. 2002. 'Earnings Dispersion, Risk Aversion and Education'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3600