On compensation for risk aversion and skewness affection in wages

Joop Hartog*, Wim P.M. Vijverberg

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

36 Citations (Scopus)

Abstract

This paper presents extensive empirical testing of the hypothesis that greater post-schooling earnings risk requires higher expected returns. Expanding on this notion, on the basis of utility theory, we predict that workers not only care about risk but also about the skewness in the distribution of the compensation paid: workers exhibit risk aversion and skewness affection. To test these hypotheses, this paper carefully develops various measures of risk and skewness by occupational/educational classification of the worker and finds supportive evidence: for men, wages rise with occupational earnings variance and decrease with skewness, for women only the negative effect of skewness is significant.
Original languageEnglish
Pages (from-to)938-956
Number of pages19
JournalLabour Economics
Volume14
Issue number6
DOIs
Publication statusPublished - Dec 2007
Externally publishedYes

Keywords

  • Risk
  • Skew
  • Wages

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