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Why Do We Ignore the Risk in Schooling Decisions?

Author

Listed:
  • Hartog, Joop

    (University of Amsterdam)

  • Diaz-Serrano, Luis

    (Universitat Rovira i Virgili)

Abstract

While uncertainty abounds in almost any decision on investment in schooling, it is mostly ignored in research and virtually absent in labour economics text books. This paper documents the scope for risk, discusses the tough disentanglement of heterogeneity and risk, surveys the analytical models, laments the absence of a good workhorse model and points out the challenges worth tackling: document ex ante risk that investors face, develop a tractable and malleable analytical model and integrate the option of consumption smoothing in analytical and empirical work. Hedging labour market risk in the stock market can be safely ignored.

Suggested Citation

  • Hartog, Joop & Diaz-Serrano, Luis, 2014. "Why Do We Ignore the Risk in Schooling Decisions?," IZA Discussion Papers 8110, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp8110
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    References listed on IDEAS

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    1. Steven J. Davis & Paul Willen, 2013. "Occupation-Level Income Shocks and Asset Returns: Their Covariance and Implications for Portfolio Choice," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 3(03n04), pages 1-53.
    2. Cunha, Flavio & Heckman, James J., 2007. "Identifying and Estimating the Distributions of Ex Post and Ex Ante Returns to Schooling," Labour Economics, Elsevier, vol. 14(6), pages 870-893, December.
    3. Belzil, Christian & Leonardi, Marco, 2007. "Can risk aversion explain schooling attainments? Evidence from Italy," Labour Economics, Elsevier, vol. 14(6), pages 957-970, December.
    4. Flavio Cunha & James Heckman & Salvador Navarro, 2005. "Separating uncertainty from heterogeneity in life cycle earnings," Oxford Economic Papers, Oxford University Press, vol. 57(2), pages 191-261, April.
    5. Bonin, Holger & Dohmen, Thomas & Falk, Armin & Huffman, David & Sunde, Uwe, 2007. "Cross-sectional earnings risk and occupational sorting: The role of risk attitudes," Labour Economics, Elsevier, vol. 14(6), pages 926-937, December.
    6. Christian Belzil & Jörgen Hansen, 2004. "Earnings Dispersion, Risk Aversion And Education," Research in Labor Economics, in: Accounting for Worker Well-Being, pages 335-358, Emerald Group Publishing Limited.
    7. Williams, Joseph T, 1979. "Uncertainty and the Accumulation of Human Capital over the Life Cycle," The Journal of Business, University of Chicago Press, vol. 52(4), pages 521-548, October.
    8. Snow, Arthur & Warren, Ronald S, Jr, 1990. "Human Capital Investment and Labor Supply under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 195-206, February.
    9. Santi Budria & Luis Diaz-Serrano & Ada Ferrer-i-Carbonell & Joop Hartog, 2013. "Risk attitude and wage growth: replicating Shaw (1996)," Empirical Economics, Springer, vol. 44(2), pages 981-1004, April.
    10. Weiss, Yoram, 1987. "The determination of life cycle earnings: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 11, pages 603-640, Elsevier.
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    Cited by:

    1. Shelest Olena, 2015. "Risk of Investments in Human Capital and Expected Worker Mobility," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 47(1), pages 82-106, September.

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    More about this item

    Keywords

    labour supply; human capital; risk; schooling;
    All these keywords.

    JEL classification:

    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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