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Compensation for Earnings Risk under Worker Heterogeneity
Author(s) -
Berkhout Peter,
Hartog Joop,
Webbink Dinand
Publication year - 2010
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/sej.2010.76.3.762
Subject(s) - earnings , compensation (psychology) , risk premium , skew , economics , econometrics , replicate , actuarial science , risk compensation , market risk , workers' compensation , demographic economics , psychology , statistics , computer science , social psychology , mathematics , accounting , medicine , telecommunications , family medicine , human immunodeficiency virus (hiv)
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.