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Compensation for Earnings Risk under Worker Heterogeneity

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  • Peter Berkhout
  • Joop Hartog
  • Dinand Webbink

Abstract

We use two large data sets 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 compare risk compensation and risk distributions between some labor market groups and find that immigrants and natives do not differ in risk attitudes, that public sector workers are undercompensated for their risk, and that risk compensation by gender is not fully consistent with higher risk aversion for women. We express concern that a linear compensation model may be too simple.

Suggested Citation

  • Peter Berkhout & Joop Hartog & Dinand Webbink, 2010. "Compensation for Earnings Risk under Worker Heterogeneity," Southern Economic Journal, John Wiley & Sons, vol. 76(3), pages 762-790, January.
    • Handle: RePEc:wly:soecon:v:76:y:2010:i:3:p:762-790
    DOI: 10.4284/sej.2010.76.3.762
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    Cited by:

    1. Markus Dertwinkel-Kalt & Johannes Kasinger & Dmitrij Schneider, 2024. "Skewness Preferences: Evidence from Online Poker," CESifo Working Paper Series 10977, CESifo.
    2. Peter Berkhout & Joop Hartog & Hans Ophem, 2014. "Starting Wages Respond to Employer's Risk," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(3), pages 229-260, July.
    3. Dertwinkel-Kalt, Markus & Kasinger, Johannes & Schneider, Dmitrij, 2022. "Skewness preferences: Evidence from online poker," SAFE Working Paper Series 351, Leibniz Institute for Financial Research SAFE.

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