Starting wages respond to employer's risk

Peter Berkhout, Joop Hartog, Hans van Ophem

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


Firms hiring new graduates face uncertainty on the future productivity of workers. Theory suggests that starting wages reflect this, with lower pay for greater uncertainty. We use the dispersion of exam grades within a field of education as an indicator of the unobserved heterogeneity that employers face. We find solid evidence that starting wages are lower if the variance of exam grades is higher and higher if the skew is higher: employers shift the cost of productivity risk to new hires, but pay for the opportunity to catch a really good worker. Estimating the extent of risk cost sharing between firm and worker shows that shifting to workers is larger in the market sector than in the public sector and diminishes with experience.
Original languageEnglish
Pages (from-to)229-260
Number of pages32
JournalScottish Journal of Political Economy
Issue number3
Publication statusPublished - Jul 2014
Externally publishedYes


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