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Does COllege Attendance Increase Wage Volatility

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  • Stacey Chen

Abstract

This paper examines whether wage volatility increases with education, important for understanding why some students are hesitant to attend college. The paper's key contribution is to provide an improved measure of wage volatility: it adjusts the standard measure --- the variance of log wages conditional on individual characteristics --- to take account of a self-selection problem that arises because risk-averse agents tend to choose careers with lower volatility. The results indicate that this selection problem cannot be ignored. Distinguishing both permanent and transitory components of wage volatility using a two-stage fixed-effects model that accounts for selection, I find that, on average, the permanent component of wage volatility increases significantly after attending a four-year college. This suggests that wage volatility may help explain why a significant fraction of qualified students do not attend college.

Suggested Citation

  • Stacey Chen, 2003. "Does COllege Attendance Increase Wage Volatility," Discussion Papers 03-01, University at Albany, SUNY, Department of Economics.
    • Handle: RePEc:nya:albaec:03-01
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    File URL: http://www.albany.edu/~schen/vd.pdf
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    References listed on IDEAS

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    Cited by:

    1. Souza, André Portela & Zylberstajn, Eduardo, 2019. "Estimating the returns to education using a parametric control function approach: evidences for a developing country," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 39(2).
    2. Oreopoulos, Philip, 2007. "Do dropouts drop out too soon? Wealth, health and happiness from compulsory schooling," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2213-2229, December.
    3. Souza, André Portela & Zylberstajn, Eduardo, 2020. "Estimating the returns to education using a parametric control function approach: evidences for a developing country," Brazilian Review of Econometrics, Sociedade Brasileira de Econometria - SBE, vol. 39(2), March.

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    More about this item

    Keywords

    self-selection; volatility differential; schooling choice;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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    This paper has been announced in the following NEP Reports:

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